The London Borough of Havering Pension Fund is planning to invest in delayed local property projects including residential housing, as more council funds increase their exposure to property to match liabilities and boost community investment.
The scheme, initially drawn by the prospect of a rental stream from commercial property, will also look at residential and shared ownership assets, whether that is done independently or in partnership with other investors.
“We have to make sure the pension fund is suitably funded, but it’s about trying to use some of that to reinvest locally in the borough, to bring forward projects that may be otherwise stalling in the current climate,” said Andrew Blake-Herbert, group director of finance at Havering’s £403.5m scheme.
The fund will “start small”, investing just over £10m as a pilot, according to Blake-Herbert. If it is successful in regenerating the borough and providing opportunities locally, as well as giving the right return for the pension fund, the scheme will increase the allocation.
“Not only is that good for the pension fund but it is good for the rest of the local authority’s funding position,” he said. "The pension fund has got to be absolutely clear on the rate of return it is going to get and the risk involved.”
The latest developments follow the London Borough of Islington's announcement that it would allocate £20m to residential property. The London Borough of Camden is among the other schemes discussing a similar move, according to local authority fund investors.
Meanwhile, the London Borough of Enfield Pension Fund has announced it is investing £25m into a property fund with asset manager M&G, which targets a return linked to RPI and includes lending to social housing across the country.
Toby Simon, vice-chair of the £700m Enfield Pension Fund board, said: “We don’t have to invest defensively, like other pension funds. We can take a different view.” The scheme chose the fund as it offered higher returns than index-linked gilts, and matched RPI, which was written into the scheme rules.
Mark Packham, director of public sector pensions at PwC, said local government funds would be wise to diversify out of low-returning assets and seek out other investments, such as residential, that could deliver other good investment returns.
Packham said: “What is driving it is the thought there is this need to get investment into housing, and there is an opportunity for pension funds to make investments in housing, given that pension fund investments are making lower returns than they have done in the past.”
Havering is considering investing either in property with an existing residential social landlord with experience managing the properties, or other London borough pension schemes.
Blake-Herbert said he was considering housing through infrastructure schemes wider than inside the borough, and once a suitable scheme had been decided on a subcommittee would look at proposals and recommend to the main pensions panel how to take it forward.
Earlier this year Pensions Week reported Havering had created a £2m cash buffer to fund payments, fueled by income-producing investments including property.
