Strathclyde keeps local focus for property investments

This comes as council funds increase property allocations in order to diversify beyond core real estate – eg central London commercial property – and into income-generating investments. Such funds also hope to simultaneously boost local economies.

Last week, Strathclyde’s pension fund committee agreed to establish a £50m Clydebuilt Property Fund with Ediston Properties that will invest in the commercial sector in the region. The fund would form part of the scheme’s New Opportunities Portfolio.

“Market information suggests that commercial property in the west of Scotland is increasingly seen as a recovery opportunity in an underresearched market,” stated the committee meeting minutes. 

The investment is hoped to provide a boost to the local economy, said convener of Strathclyde Pension Fund and Glasgow City Treasurer, councillor Paul Rooney.

"I’m positive about seeing more of their money being invested in the communities in which they work and live – supporting native businesses and jobs,” he said in a statement.

Strathclyde said the main focus is expected to be commercial property. “Opportunities in residential property and other areas that fit the fund’s criteria will be considered,” the scheme stated.  

The £13.4bn local authority fund has 7.5 per cent of its portfolio allocated to UK real estate, with a manager that invests in properties in excess of £10m. “It was envisaged that the Clydebuilt Fund would invest in lot sizes below this [amount],” the minutes stated.  

Local investment 

The London Borough of Havering Pension Fund earlier this year announced plans to invest in local properties, including residential housing. 

Community investment has moved up the agenda in the past 12 months, said Mark Packham, director of public sector pensions at PwC, but he warned there are governance issues associated with this sort of investment. 

Transparency and clarity are very important, he added. "[Local authorities] need to manage conflicts of interest and perception of conflicts of interest," he said. "Schemes do not want to look like they are politically motivated when making investments."

Council funds also need to be very clear about the limits for local investment because at a point the diversification benefits are lost, Packham added.  

Diversification

Most schemes have remained focused on UK property, in strict contrast to their equity exposures which have become much more global in nature, said Terry Mellish, head of UK and Ireland business at Natixis Global Asset Management.

“Bricks and mortar in this country are something [trustees] understand,” he said.

Schemes with good governance structures can consider more specialist property investments such as regional funds and social housing. “In addition to vanilla core, people want more for their money in the UK market,” he said.

Property allocations by DB schemes have generally been increasing, said Steve White, managing director at Buck Global Investment Advisory.

“For schemes with longer time horizons, there has been a general acceptance that over the past 10 years, property has been a reasonable investment with a reasonable level of fairly smooth returns,” he said.

There have been changes to the way schemes invest in property, with fewer core assets and more specialised investments.

“There is an increased take-up [of] long-lease funds… inflation-linked property funds, overseas funds, fund of funds structures and property debt,” White added.