Northern LGPS pool to invest £150m in affordable housing

The Northern LGPS pool is planning to invest a further £150m in affordable housing projects following a successful investment of a similar size last year.

Northern’s previous £150m affordable housing investment targeted “build-to-rent” properties where the rents are pegged at a level that key workers can afford. The next tranche will take a similar approach.

Paddy Dowdall, assistant executive director of the Greater Manchester Pension Fund (GMPF), told Room151 that the new investment is scheduled for early summer. Returns are expected to be in the “mid-single digits”, he said.

Northern LGPS comprises the GMPF, plus the Merseyside and West Yorkshire pension funds. It has combined assets under management of more than £50bn.

Benefits of ‘build to rent’

Dowdall said that build-to-rent provided an opportunity to invest in a “defensive” asset class with a large addressable market, growing demand, constrained supply and an attractive risk/return profile.

“The cash-flow profile of these investments could almost have been designed for mature pension schemes. While there is no contractual link to RPI or CPIH, affordable rents have a long-term correlation with inflation. The pay-back profile matches pension liabilities really well.”

Northern’s first £150m tranche was through PGIM Real Estate’s UK Affordable Housing Fund. The investment manager for the next tranche has yet to be confirmed.

Dowdall added that the risk/return payoff was “highly attractive” across a range of private market investments – including housing and private equity. However, the fees and transaction costs are “significantly higher than for the public market”.

The best way to reduce the costs, according to Dowdall, is to increase the scale of the projects – partnering with other LGPS funds through the pools – and to improve internal capability to avoid over-reliance on fund managers.

“Increased scale can also be used to promote ESG elements, such as being a good landlord, treating tenants well and reducing the carbon intensity of energy consumption,” said Dowdall.

He will be talking about these issues at the Room151 LGPS Private Markets Forum in London on 22 June.

Other speakers at the forum include: Graham Cook, chief investment officer at the Environment Agency; Vanessa Shia, head of private markets at London CIV; and Stephen Wild, head of pensions and treasury at OneSource.

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