Local government pension schemes have committed £5B of much-needed capital to UK real estate investment in the past three months. But the new investors in the market are allocating their capital very differently than traditional institutions.
Pension schemes of local authorities have allocated capital to strategies being overseen by investment managers including Schroders Capital, Legal & General Investment Management, Orchard Street and Abrdn, with a major focus on affordable housing and alternative sectors like life sciences.
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“There is a lot of interest from certain types of clients, particularly local government pension schemes, charities or endowments, for impact-related funds,” Fiera Capital Head of Sustainable Investing, Private Markets Jessica Pilz said at Bisnow’s UK ESG Real Estate Agenda last week. “And so there is a push to really invest capital and resources in those more strategic new products that are coming out.”
This week, Border to Coast, the UK’s largest LGPS investment pool, announced that some of the schemes investing in it had created a new real estate fund that will initially have £1.2B of assets under management. Tyne and Wear Pension Fund, Cumbria Pension Fund and South Yorkshire Pensions Authority came together to pool 65 existing holdings to seed the vehicle at launch.
Over the next five years, the aim is to grow the fund to £3B. It will target sectors including life sciences, affordable housing and other forms of residential.
Border to Coast will be responsible for the strategic direction of the fund. It has appointed Abrdn as investment adviser.
The Wales Pension Partnership awarded Schroders Capital a £2B real estate investment mandate in August. WPP is an agglomeration of eight Welsh LGPSs.
That mandate came with a commitment for Schroders to deploy up to £400M in positive impact and local investment across Wales, including local employment-generating opportunities, affordable housing and healthcare, Schroders said.
“The mandate will also target impact opportunities across the UK which deliver positive social impact and decarbonisation strategies that support WPP’s net zero ambitions,” it said in a statement.
Last week, the Access Pool — a collaboration of 11 central, eastern and southern LGPSs — committed £100M to a real estate impact fund managed by Orchard Street. In July, it committed £125M to LGIM’s affordable housing strategy. That strategy also bagged £150M from the Greater Manchester Pension Fund.
Changes in the way pensions are operated led to an exodus of historic pension funds from UK real estate that has dampened investment in the sector. With that in mind, the arrival of new sources of capital is likely to be welcomed.
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