BlackRock has raised £500m (€566m) for a hybrid fund that invests in infrastructure debt, renewable energy, real estate debt, long-lease property and private credit.

The investment manager said the BlackRock UK Strategic Alternative Income Fund is designed to provide UK institutional investors with a net annual yield of 5% and cash flows linked to inflation.

BlackRock launched the sterling-denominated real assets fund last year, aimed at the UK’s defined benefit pension scheme market.

The announcement comes several months after UK pension fund consultancy Willis Towers Watson launched a secure-income fund, with similar objectives, targeting the same asset classes. 

Andrew Stephens, managing director for BlackRock’s UK institutional business, said: “This fund was specifically designed for UK institutional investors, making it possible for them to access a broad, actively-managed private-market investment portfolio.

“UK pension schemes in particular are facing the triple threat of underfunding, a poor forward-looking return environment from traditional assets and increasing cash-flow negativity.

“They are also ideally positioned to benefit from allocations to private market assets, given their longer-term investment horizons.

“Trustees are increasingly recognising the yield premium offered by less liquid assets as well as the diversification benefits they provide.”

BlackRock’s 2017 Rebalancing Survey found that 63% of UK institutional investors expected to increase their allocations to real assets this year.

Stephens added: “The commitments we have seen to date reflect the growing demand for these types of investments and we expect alternatives broadly, and private markets specifically, to take up a greater part of institutional investors’ allocation in future.”

The fund, managed by BlackRock’s alternative solutions group, is semi-open-ended and provides “windows of liquidity” every year following an initial four-year lock-in.

BlackRock said there would be an opportunity for other investors to join the “evergreen fund” in the next six to 12 months.

The fund is able to allocate to asset classes with flexibility. BlackRock said this allowed portfolio managers to maintain diversification while taking advantage of opportunities as and when they arose.