Investing for Growth – Building a Resilient Portfolio

Introduction

In this article we summarise Fulcrum’s “Investing for Growth – Building a Resilient Portfolio” conference. Alongside presentations from Fulcrum colleagues, the afternoon paired panel discussions with external speakers drawn from a wide range of backgrounds, all while reflecting on the two years since our Long-Term Asset Fund (LTAF) was launched. Over 100 guests from the investment community joined us, and our thanks go to all who attended and contributed to the discussions.

Resilience and Fulcrum Alternative Solutions

The Alternative Solutions team has been on an eight year journey, helping investors to overcome the challenges they face in alternatives. We started with a liquid alternatives solution, gradually building an LTAF solution, which launched in 2024. Some recent underlying investment deals that feature in the LTAF were on display at the conference to give participants a greater insight into our thought process. These ranged from quantum computing to the sustainable renovation of offices. The process at Fulcrum has been driven by the following set of beliefs:

Belief 1: You cannot find the best in class under one roof – we aim to be open-minded about the best access route for an investment.

Belief 2: Innovation drives returns – we have built a pipeline of small and mid-sized deals that are value add opportunities, where pricing is less efficient and outcomes are shaped by execution rather than market beta.

Belief 3: Control is key – we have developed a collection of open-ended vehicles where costs are carefully overseen and we have a right of refusal on each allocation.

Belief 4: Contribute to a more resilient system – we are looking at how each investment can help contribute to a healthier economy, with improvement goals for each asset.

To illustrate, how a healthier system is vital for resilience. Take a 35-year-old who works in construction and currently has £10,000 in their DC pension pot. They have struggled to build their pension pot over the years due to a combination of part-time jobs, zero-hour contracts, and not being able to afford additional voluntary contributions because of the cost of living crisis.

• We have a savings investment crisis. Solving via additional contributions is very difficult currently due to affordability.
• We could focus on stronger outcomes/returns and where this can make up for the lack of contributions. But better financial returns do not answer the problem on their own.
• Financial outcomes and economic resilience are clearly linked over the long term. In other words, it would be very helpful to have an economy where the 35-year-old feels like they can afford to contribute more to their pension investments.

Financial outcomes and economic resilience are not separable. A saver’s pot depends on the returns we generate, but it also depends on the wages, the job security and the growth of the economy those returns are drawn from – and that economy is, in turn, shaped by where long-term capital is put to work. Our 35 year old is on both sides of that relationship: they are the investor and they are the construction worker whose sector needs the investment.

It can sometimes feel difficult to reconcile the point about financial outcomes and economic resilience. They are dependent on each other and the timeframes can feel inconsistent. At Fulcrum we believe it is possible to achieve both outcomes simultaneously. In this article we aim to explore the different themes of resilience and how to navigate the alternatives space. Resilience in the economy that generates the returns, resilience in the portfolio that has to deliver through a downturn without forced selling, and resilience in each individual asset we own and improve.

Building a resilient high return credit portfolio – Belief 1

Credit markets have dominated the headlines this past year, and not in a good way.  From the collapse of MFS, Tricolor and First Brands to retail outflows from the US Business Development Companies (BDCs). Alongside these idiosyncratic shocks, concerns have grown over credit exposure to AI. Morgan Stanley forecasts that AI-related issuance will reach $570bn in 2026¹, comparable to the entire European High Yield market, fuelling scepticism about an AI bubble and the funding circularity underpinning it. Although our underlying credit managers remain underweight AI and technology, they are finding selective opportunities to benefit from it, some of which have delivered equity like returns.

Nevertheless, credit is not broken. There are many interesting opportunities to explore and exploit. Within our Illiquid portion of LTAFs, we hold two complementary credit funds under two different managers, designed to explore and exploit in different areas (Belief 1). Our total return credit exposure aims to identify compelling “going concern” investments across structured credit, opportunistic credit and core middle market direct lending. Our opportunistic credit exposure focuses on providing capital to good companies with bad balance sheets, maximising the upside potential as well as investing in bonds and loans trading at distressed prices where they think there is the potential for material upside. Both are remote from the crowded ‘Upper Middle Market’ ($150m EBITDA), limiting their exposure to ripple effects from BDCs.

An important component of resilience is learning from the past. As a manager researcher, part of that is asking the right questions. With the rise of AI encompassing everyday life; it is worth asking managers how they are integrating AI into their own investment process, and what the portfolio’s interest coverage ratio reveals about underlying stress and macro weakness. Additionally, it’s always best to reflect on what has been the worst trade a manager has had and what they learnt from it, as well as how to stop fear from clouding judgement when the next opportunity comes along.

At Fulcrum, we build resilient credit portfolios by drawing on a range of specialist managers, each with a distinct edge, so the portfolio can withstand market downturns and deliver steady, predictable income streams. This approach we set out in more detail in Building a resilient Alternative Credit portfolio – Fulcrum Asset Management.

Natural capital solutions – Belief 2

Through all walks of life, nature plays a key role in sustaining life on this planet. From the provision of food to the regulation of our environment through services like carbon sequestration and flood mitigation, more than half of global GDP² (arguably far more) is moderately or highly dependent on nature. So, its degradation creates systemic risks, while its preservation creates opportunities for innovation and long-term value creation.

Payment for ecosystem services are outcome-based payments from corporates and other entities buying resilience tied to the catchments their operations depend on. Historically the market has been led by supply, however we are seeing a growth in demand from corporations and government schemes to help reduce the risk of flooding and biodiversity degradation. One example is Evenlode, a catchment scale project in Oxfordshire, that uses natural flood management by restoring wetlands, floodplains, and river channels. This helps build resilience against both flooding and drought while improving water quality and biodiversity.

UK local government pension schemes are starting to invest in payment for ecosystem services. It is still a relatively new asset category, but it has several characteristics that suit long-term UK investors. It acts as a capital diversifier away from traditional markets and offers inflation linkage similar to infrastructure. What is more, the impact of these projects helps ensure a resilient UK ecosystem, which underpins their investments.

Natural capital extends to agriculture, which faces the same climate change challenges. Food security is threatened globally as both arable land and water supplies become depleted. To ensure operational alpha and alleviate key risks it is crucial to focus on asset selection i.e. looking at soil composition, water demands and access to labour as well as to derive sustainable value add opportunities (Belief 2) through the effective management of farms utilising regenerative practices and technology.

We believe that nature’s destruction creates systemic risks, while its preservation opens opportunities for innovation and long-term value creation. This reframes Natural Capital not as a niche impact allocation, but perhaps a systemic risk factor which will be a necessity for investors seeking durable long-term performance.

How we address Private Market Bugbears – Belief 3

Private markets carry historic challenges that span a wide spectrum. First, the layers of fees are hard to unpack and are often high. Second, questions remain over the integrity of performance data – for instance, the survivorship bias in peer groups and Internal Rate of Return presentation practices in track records. Both could make it harder for investors to know the returns associated with what they are buying. Third, traditional closed-ended funds can have overlapping transactions and suffer cash drag when capital stays undeployed while waiting for the next deal. Other problems include core income assets sitting in growth portfolios, difficulties in accessing illiquid deals, and how assets are valued.

Fulcrum believes the answers lie in structure (Belief 3) and making sure investments have both elements of return and economic resilience. Structure is what makes those elements deliverable rather than aspirational. Fees that compound against the saver, capital sitting idle, and terms we cannot influence all erode resilience as surely as they erode returns, and none of them can be fixed after the fact. They have to be negotiated at the outset.

Our recent asset manager search on natural capital is a good illustration of this belief above in practice. We screened the universe, reviewed more than forty specialists, and shortlisted seven managers. The final and most crucial step was engaging with the two selected managers to secure appropriate fees, a right of refusal and a bespoke open-ended vehicle. Every illiquid deal we do is value add and goes through the same due diligence process, and we develop an improvement plan for every asset on a deal by deal basis, so that each holding is measurably more durable at the end of our ownership than at the start. Since inception we have rejected deals that were overvalued or did not fit our growth mandate.

That improvement plan is where a resilient economy stops being a statement of intent and is actioned. It is the mechanism by which a return generating asset also contributes something to the healthier economy that our 35 year old is saving into, not as an overlay on the portfolio, but as a component of each transaction.

In short, we address the key issues in private markets through effective controls and bespoke terms and structures that give us oversight of the underlying assets. Our LTAF provides a single point of access to a diverse set of asset categories: real estate, infrastructure, natural capital, credit, and alternative equity, across the spectrum of liquidity.

Innovation in the UK – Belief 4

The UK is excellent at starting companies and poor at keeping them. In 2025 the UK ranked 2nd globally in the Start-Up Blink 2025 index and had the 3rd largest Venture Capital market by size (BVCA), while boasting some of the most highly regarded universities including Oxford and Cambridge. Yet when you look at the listed market, things are not so rosy. The London Stock Exchange (LSE) in H1 2026 raised $770m while, over the same period the Nasdaq raised $129bn. The problem is that most UK start-ups are acquired by foreign buyers, or list abroad, before they ever reach a domestic Initial Public Offering.

The UK does not have a start-up problem and instead has a scale up funding problem. Beyond Series B, follow on capital from UK pension funds largely disappears. Oxford Science Enterprises (OSE), which invests in UK venture capital out of Oxford, will often seed start-ups and follow on. However, while the cap table at the start commonly begins with a plethora of UK investors, as each round goes on this diminishes, making it harder to scale without European and US capital. One example of this is OQC, a Quantum Computing company that OSE seeded, which has just closed at £260m for Series C. This was the largest ever private quantum computing funding round in Europe. At the cap table Fulcrum was the only source of UK pension fund money, dwarfed by US pension capital.

The knock-on effect of a lack of funding reaches the UK AIM and small-cap listed markets. With little fresh capital allocated and few new names coming to market, valuations stay depressed and the investable universe shrinks further, as foreign firms buy out UK companies that they perceive to be cheap. The effect is self-reinforcing, where a smaller, cheaper market attracts less domestic capital, each takeover makes the next one easier, and every departure removes a listed name that will not be replaced.

The answer is to invest at each stage from seed to listed so that UK companies can scale at home (Belief 4). The pay-off compounds as a more resilient funding chain keeps high growth firms based in the UK, strengthens national security through sovereign technology, and drives a multiplier effect across the economy as jobs are created and kept in the UK. Resilience is not just weathering shocks it is building an ecosystem that can carry its own winners from start-up to scale.

Client, consultant and trustee perspectives

Fulcrum strives to understand and deliver positive outcomes that meet our clients’ needs. Being a long-term investor means preserving real value for the future, while generating returns today. Striking the right balance between liquidity and income is essential, particularly for pension schemes, whose beneficiaries are spread across different retirement timelines. Many of our clients are not deterred from incorporating illiquid investments, given the potential return, but they must be sure these strategies are being properly managed and that they match their liabilities.

With that in mind, we constructed our evergreen LTAFs comprising three different modules, with varying liquidity. The liquid modules help to provide rebalancing feasibility for clients, whereas the illiquid module invests in small to mid-sized deals globally where we can add genuine value. At least a third of the portfolio is targeted at UK assets, echoing the importance of driving UK innovation and boosting domestic economic growth.

The ESG landscape has evolved significantly. As sentiment has shifted, some sponsors have stepped back from their net zero commitments. Others treat it as a tool to engage with managers and gain more insight into what they actually own. ESG still forms a core part of our investment decision-making. We have deliberately broadened our universe, which now includes sustainable development of agricultural land and the long-term trends around it, such as conservation, food security and water management. Increasingly, endowments and investment consultants are asking about these areas too, viewing biodiversity and natural capital as a source of value creation and a way to further diversify their portfolios.

We know that our clients’ biggest concerns are portfolio concentration and forced systemic selling at a direct cost to returns. At Fulcrum we have strong governance, a clear liquidation plan and rigorous stress testing of the underlying assets. In addition, being smaller allows us to be nimble and innovative; we are able to move quickly where we see value and tailor solutions to our individual clients.

Bringing it all together

The session closed by drawing on how investors can build genuine portfolio resilience. Portfolio resilience matters because it creates a positive feedback loop between financial outcomes and economic strength. Building it requires investors to think carefully about three things – what to invest in, how to do it, and what to avoid. The presenters set out how this can be approached in practice by:

• Credit showed why the best in class is not found under one roof, so we draw on specialist managers with genuinely different edges (Belief 1)
• Natural capital showed where the value is added rather than bought, in small and mid-sized assets where regenerative practice, technology and asset selection do the work rather than market beta (Belief 2)
• Private markets showed that fees, cash drag and terms cannot be fixed after the fact, which is why control is key (Belief 3)
• UK innovation showed that resilience is the financial ecosystem itself, and that investing at every stage from seed to listed is what keeps the funding chain, the companies and the returns at home (Belief 4)

These beliefs reflect our central aim: helping investors solve the challenges they face when accessing alternative investments.

Panel Discussions

We are extremely grateful to the following for participating in our Panel Discussions:

• Rob Fawn: Portfolio Manager, European Leveraged Finance, PGIM;
• Rob Giles: Lead Portfolio Manager, UK Small Caps, Lombard Odier Investment Managers;
• Sam Harman: Head of Deep Tech, Oxford Science Enterprises;
• James Hurrell: Head of Investments, Rebalance Earth;
• Simon Phillips: Chief Technology Officer, Oxford Quantum Circuits;
• Ramón Rivera: Co-Chief Executive Officer, ATGRO;
• Wilf Stephenson: Chief Investment Officer, Christ Church, University of Oxford;
• Alex Tebbutt: Senior DC Investment Consultant, Isio;
• Marc Touboul: Portfolio Manager, Liquid & Structured Credit, Bain Capital;
• Darran Ward: Head of Alternatives – WYPF, Northern LGPS;
• Tim Giles: Trustee Director, Independent Governance Group.