Spike in housing opportunities for funds

Schemes have targeted residential housing to provide a relatively low-risk, interest rate-linked return on their investment. The high cost of index-linked gilts has forced many to look elsewhere for assets that will match their liabilities.

New boutique provider Catalyst for Homes (C4H) has launched a £1.3bn trust that will invest a mixture of private and social housing, and the company is already in talks with several local authority funds. It offers a mixture of secured (4 per cent) and profit-related returns.

Following socially responsible investor guidelines, it will invest its own profits back into the property trust and local neighbourhoods, and is estimating annualised returns exceeding 10 per cent.

Adam Sampson, the trust's non-executive chair, is a former chief executive of the homeless charity Shelter.

"C4H reinvests its profits as they are repaid, subject to investor yields into the local neighbourhoods, addressing long-term support for jobs, facilities, local charities and social enterprise, with an anticipated 30-year spend in conjunction with local authorities of £380m," according to the fund documents.

Elsewhere, Legal & General Investment Management has appointed Alex Gipson, a banking expert in loans to social housing groups, from RBS to help structure similar opportunities to investors.

Meanwhile, M&G has acquired 401 rented units next to the Olympic Park in East London at a price of £125m, which will join a fund that has delivered a 7 per cent return over inflation for the past three years.

Greg Wright, investment consultant at KPMG, has highlighted that UK schemes are following those from abroad who have been investing in residential property for some time. He said schemes in Europe and the US had allocations up to 30 percent in the past. “In the UK, investment in student accommodation has occurred, and investment in social housing is just a variation of that,” he added.

Pension funds are also being targeted with higher-risk residential housing funds, giving a higher return opportunity. Some have already invested in luxury residential property in London, which is attracting emerging market investors, said Wright.

Paul Francis, head of investment consulting at JLT Benefit Solutions, believes it is important that pension schemes work hard to find a fund manager skilled at managing the risks associated with residential housing. He said: “We would recommend a full due diligence exercise to investigate the underlying property management process and assess the manager’s ability to work the properties to their full potential.”