Ogimi, a small village in Okinawa, one of Japan’s southern islands, is famed for having the highest concentration of centenarians in the world. Ogimi is the same name that UMR, the €11 billion ($12 billion) French mutual savings and pension organisation and home to one of France’s largest private pension funds, has given to its new €350 million multi-asset thematic program that will target opportunities in Europe’s ageing economy.
“We have two main aims from the allocation: to have a positive impact on society, and benefit economically from Europe’s ageing population and the increased spending on products and services that is projected to reach trillions of dollars in the coming decade because of longer life expectancy,” Lyes Arezki, who has been investment manager in private assets at UMR for the last three years, tells Top1000funds.com.
According to the European Commission, about 22 per cent of the EU’s population is aged 65 or older today. A percentage that is forecast to grow to 30 per cent in 10 years.
UMR’s Ogimi allocation will focus on listed equities, venture and growth private equity, real estate, and private debt. Although the allocation will include listed equities, the bulk (€250 million) will sit in private markets. Allocations will comprise direct investments managed internally by Arezki alongside allocations to specialist funds and co-investment opportunities. Targets will span companies and assets like services that support independent living to cutting-edge healthcare technology and elderly nutrition.
UMR is targeting returns of 9-11 per cent in the private debt sleeve whilst in private equity, the target is 13 per cent. But Arezki warns that the allocation will be particularly vulnerable to inflation and higher interest rates.
“Inflation will force changes in underlying corporate pricing strategies, and if central banks increase rates, the interest on corporate loans will increase. If prices go up, elderly customers will spend less on products and services,” he says.
He also hopes that other long-term investors will join UMR in co-investment opportunities.
“We have introduced Ogimi to other pension funds and a few family offices. The feedback has reinforced our conviction that ageing is a major structural trend and one that long-term investors should monitor closely.”
diversification
The new strategic asset allocation is part of UMR’s enduring bid to increase diversification in private markets. Private markets are divided between private equity, infrastructure equity, private debt and real estate debt, mandated to managers and funds with a French bias.
Private assets account for around a quarter of total AUM (big by French standards) in an allocation that targets long-term income, alignment with UMR’s deeply ingrained sustainability alongside other exposures to structural trends. “Private assets must contribute to the resilience of the portfolio rather than simply adding illiquidity,” he says.
But Arezki explains that diversification is challenging. Around 60 per cent of the entire portfolio is invested in France and although he is actively trying to reduce the French bias by seeking opportunities in European and global funds with specific themes the current investment environment isn’t helpful. Volatility in public assets, conflict in the Middle East and Europe, de-globalisation and AI combine to cloud visibility around GDP growth, risk in bond and equity markets, and the trajectory of inflation and interest rates.
Individual sleeves of the private markets portfolio compound the problem. The moribund M&A market has hit private equity exits, for example. It is why UMR is monitoring the secondary markets as a tactical tool to manage the allocation – particularly in the event of significant macroeconomic or market developments.
“The secondary market is becoming an increasingly relevant tool to adjust private assets exposure. The market is structurally gaining momentum and is playing a growing role in portfolio management for long-term investors.”
In private debt, he notes investors have “less spread” and are “using more leverage” as a consequence of the amount of capital that has flowed into the asset class which has compressed spreads and reduced the yield lenders earn above benchmark rates. He is also mindful of covenant breaches if corporates don’t have visibility on sales and metrics, including loan rates.
Still, he believes that systemic challenges in the asset class have been overdone by the media and are confined to publicly traded business development companies with exposure to software companies vulnerable to AI.
One way he can build diversification is via a granular exposure to multiple funds. For example, in private debt alone, UMR invests with 56 funds even though it only accounts for 5 per cent of the total portfolio. If that number becomes too much (it is capped at around 65), he concludes that it is easy to adjust the allocation – in the secondary market.
