BlackRock plots ‘sustainability characteristics’ multi-strategy fund for its first LTAF

BlackRock’s LTAF strategy will range from ESG risk management to thematic investing in sustainability sectors across public and private markets.

BlackRock is planning to launch a sustainability-themed, multi-asset-class fund as its first long-term asset fund.

The fund, named Diversified Alternative Strategies LTAF, will have a private markets allocation of between 50-60 percent: 20-40 percent of the total LTAF will be allocated to real assets; 10-20 percent to private equity; and 10-20 percent to private debt. Between 40-50 percent of the fund will comprise listed markets investments, including public equities, fixed income and REITs.

BlackRock declined to comment on target returns, but a source with knowledge of the strategy told New Private Markets it aims to generate percentage returns “in the high single digits”.

BlackRock’s sustainability efforts for the fund will vary by asset class and investment type. Such efforts could include “managing ESG risks”, “the integration of ESG considerations in the assessment of investments” and “providing capital for investments that can support sustainable themes”, Dominic Byrne, a director in BlackRock’s EMEA Retirement Solutions department, told New Private Markets.

An LTAF is a fund structure recently introduced by the UK’s Financial Conduct Authority that allows defined contribution pension schemes in the UK to invest in illiquid private assets. News of BlackRock’s plans comes less than two months after Schroders launched the UK’s first LTAF, Climate+ – a climate impact fund investing via private equity, infrastructure, real estate, natural capital and a minority allocation to more liquid investments.

BlackRock is seeing more demand from its DC scheme clients for access to private markets, said Byrne. “DC schemes are growing in size, so they have greater scale and more demand for sophistication.”

Simultaneously, with sustainability rising up the agenda for most investors, “how a manager is approaching sustainability and integrating ESG considerations into their investment process… are table stakes” for DC clients, said Byrne.

“The primary objective is to generate returns for members,” Byrne continued. BlackRock has taken the multi-asset approach “to provide a broader range of return drivers for DC funds to access private markets and a diversified alternative exposure”. This includes “diversified exposure to a range of asset classes across the liquidity spectrum”.

A statement from BlackRock stated the LTAF will also “provide clients [with] exposure to sustainable investment themes” by investing in “alternative strategies that have sustainability characteristics, such as those which will have a social impact and those supporting the transition to a low-carbon economy”.

“For private equity, we will be tailoring that exposure to access specific sustainability themes,” said Byrne, such as climate, healthcare, financial inclusion and education.

For real estate and infrastructure investments, “we can make sure that the assets have a clear decarbonisation plan for all assets, both legacy and new,” said Byrne.

NPM asked whether “grey-to-green” transition strategies are a requirement for all real asset investments, or merely a possibility. Byrne responded: “We want to make sure we’re continually working with and monitoring those assets to meet certain criteria, which means assessing those investments at the point of investment and on an ongoing basis.”

In other asset classes, BlackRock also sees opportunities for sustainability-related investing: “For infrastructure, we can apply a theme such as decarbonisation that determines the opportunities that we choose during due diligence processes,” said Byrne.

The listed equities allocation could be invested in sustainability-themed baskets, said Byrne, “or we have the ability to have year-on-year decarbonisation at the portfolio level”. Investments in other listed markets could include sustainability efforts such as “improving ESG scores relative to an ESG comparator and reducing carbon emissions”.

“So, similar to the private side, the listed markets investments incorporate strategies such as thematic exposures, or there are strong ESG features within the design.”