British MPs have a large allocation to junk
The Parliamentary Contribution Pension Fund, which has 869 members made up of current or former British MPs, has a significant exposure to sub-investment grade fixed income (Jason Alden/Bloomberg)
Politicians are often accused of seeking out the finer things in life.
But when you consider the £853.3mn Parliamentary Contributory Pension Fund then you have to question whether that’s always true.
The fund, which has 869 members made up current or former British MPs and is funded by the taxpayer, has quite a large allocation to sub-investment grade fixed income.
By our calculations, 10.5 per cent of the entire scheme is made up of sub-investment grade, or junk, fixed income.
Of its entire fixed income allocation, 42.3 per cent is classed as sub-investment grade.
If an investment is given a rating of Ba, the highest rating in the sub-investment grade space, it is “judged to have speculative elements and are subject to substantial credit risk,” according to Moody’s.
Just to get some perspective, the lowest rating in the sub-investment rating spectrum is C, which Moody defines as being “typically in default, with little prospect for recovery of principal or interest”.
The PCPF’s allocation includes an investment in a Barings mandate which is considered “not rated”.
“Please note that the entire Barings private debt investment has been classed as ‘not rated,’” the fund’s annual report states. The mandate makes up for 3.9 per cent of the total scheme, or 15.6 per cent of the whole fixed income allocation.
On this, a PCPF spokesperson said “The Barings private debt mandate is classified as ‘not rated’ because no external agency ratings exist, although Barings assigns internal ratings and the assets are broadly sub-investment grade”.
Now you might be wondering if the scheme’s trustee is concerned with this? Nope.
When AOX asked the PCPF about this, a spokesperson said: “The PCPF’s allocation to sub-investment grade credit is a considered part of a long-term investment strategy, with appropriate oversight and risk management in place.”
The spokesperson also added the investment is considered appropriate by the trustees and their advisers given the fund’s long-term investment horizon, strong covenant, and funding position.
“As at March 31, 2025, 64 per cent of PCPF bond investments were considered sub-investment grade (ie rated BB or below) or were not rated,” the spokesperson told AOX.
There are no plans to change the allocation to sub-investment grade credit.