• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Jonathan Bunt: LGPS pools could ‘add value’ by investing in housing assets

0
  • by Jonathan Bunt
  • in Blogs · LGPSi
  • — 17 Oct, 2017

Photo: Pixabay, CC0

Why did LGPS funds recently turn down the opportunity to invest in housing assets? Jonathan Bunt argues this is an area where pools could offer real value, if they can learn to move quickly and put the right mandates in place.

In recent years, there has been an absence of good quality index linked products and, as a result, those that are available are very expensive.  The demand for such instruments from funds has driven up the price and driven down the value they offer. Similarly, I have recently read a number of articles in the housing press about the attractiveness of housing assets to investors for their predictable real returns.

It is against that backdrop that we recently offered a range of funds an—albeit relatively small—long-term, housing-backed investment with a direct inflation link, to which we received a very mixed response.


Register for the Room151 LGPS Quarterly Briefing


The large city institutions took an immediate and serious interest understanding the nature of the investment and competed to become preferred bidder.  This was reflected in their pricing with offers in the range that will enable the local authority sitting behind the deal to beat the  Public Works Loan Board rates over the same period.

By contrast, the same investment opportunity received little, or no, interest from the local government pension scheme funds that were approached.  The small number of funds that gave it some consideration priced it very significantly higher than the city institutions and were, therefore, never a realistic contender.

LGPS questions

This type of index linked product fits squarely in to an LGPS portfolio as a matching asset offering a real return which, based on the offers from the large city funds, meets common actuarial assumptions. The questions that therefore followed were why LGPS funds were not interested, or competitive, plus what does that mean for the planned pools for the future?

For smaller funds, the limited capacity on pensions investments results in a restricted ability to analyse and evaluate opportunities that are directly presented. In such roles, where pensions may only be part of a role, to have the time to consider such ad hoc proposals is challenging.

In larger funds, where there is greater investment capacity, other issues were flagged. For some, whilst being very experienced managing certain types of investments, this was a different product and one they did not immediately recognise. Accordingly, one of two things then occurred.

Firstly, the knowledge, understanding and experience of the indexed linked market was missing and the fund either did not know how to price it, or priced it way off the institutional investors. Alternatively, the offer was viewed as a property investment rather than an alternative form of indexed linked credit and it was therefore scrutinised in the wrong light leading to incorrect pricing assumptions. The final issue that arose was that the governance of (many of) the funds was such that it could not even attempt a decision in the approximate one month timeframe that the process was working to.

The offer was also discussed with one of the pools and this was a very positive conversation. The gathering of investment professionals in a single place enabled a much more focussed debate on how it would fit in to an LGPS portfolio and offered indicative pricing in line with the market.  The issue for the pool was that it had no mandate for such a product as they had not been instructed by the individual funds to consider it at this point.

As a local authority finance director I was always relatively neutral about pools but it is clear to me that here is an area where they can add real value. The challenge for a pool will be to get in to a position quickly where it can gather mandates from the funds and have the authority to place investments directly. To do this successfully, pools will need to ensure it can replicate, or better, the skills, knowledge and processes of an institutional investor and respond with their agility to opportunities. Most local authorities would be much happier to seek funding on the sorts of terms that we have been able to achieve from LGPS schemes but to do so, the pools and the funds have to become market normative.

 

 

Share

You may also like...

  • Supreme Court ruling: No charter for LGPS boycotts 26 May, 2020
  • Fed policy, Germany and gilts Fed policy, Germany and gilts 14 Mar, 2012
  • David Green: MiFID II – deadline looms for action David Green: MiFID II – deadline looms for action 19 Dec, 2016
  • The December 9th EU Summit Agreement The December 9th EU Summit Agreement 13 Dec, 2011

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 21 hours ago

    Going beyond the standard metrics for climate change: Sponsored article: With climate change an investment imperative and an imminent reporting requirement, Ritesh Bamania argues UK pension schemes should look beyond today’s standard metrics. With… dlvr.it/RtnpLS pic.twitter.com/6ABaFHyS9I

    Room151 2 days ago

    LGPS webinar: Governance the key to TCFD implementation: LGPS funds have been warned that governance is it at the here of Whitehall plans to impose a new climate reporting regime on pension funds. In January the Department for[...] dlvr.it/RtjwNq pic.twitter.com/YMiMdmRyzU

    Room151 2 days ago

    LGPS webinar: Central bank management of bond purchasing could affect all asset classes: When the government debt caused by the pandemic is eventually tackled there may be a huge impact on assets of all classes, according to a leading investment expert… dlvr.it/RtjwJx pic.twitter.com/7v8K5vMYHo

    Room151 2 days ago

    #LGPS readers...what to do about #bonds? room151.co.uk/blogs/lgps-web… @BrunelPP 's new CIO, David Vickers tackles a problematic area #centralbanks #assetallocation #fixedincome pic.twitter.com/yUJr0azbKv

    Room151 2 days ago

    LGPS Challenges: Balancing Realpolitik and responsible investment: Elizabeth M. Carey warns of the perils of an ESG echo chamber as countries outside the West continue to invest in fossil fuels. Anyone working with the LGPS probably feels[...] dlvr.it/RtjMpq pic.twitter.com/MykIYxuYri

    Room151 6 days ago

    How can local government ‘build back better’?: Beverley Gower-Jones looks at the options for driving small business entrepreneurship in clean technologies. Innovation is essential for local authorities to save money and reduce emissions, it is the… dlvr.it/RtT3nS pic.twitter.com/bSMB6OG70t

    Room151 6 days ago

    Helen Randall: Spelthorne report places spotlight on ‘controls’: Fresh criticism of Spelthorne Council raises the question of what “good” controls look like when negotiating a property deal. Spelthorne Council’s continuing debacle over property… dlvr.it/RtSPhy pic.twitter.com/9uCOJgBcH6

    Room151 6 days ago

    Step-out strategies: Hitting the sweet spot between liquidity and ultra-short duration: Sponsored article: Jemma Clee describes how an ultra-short duration strategy can help local authorities enhance returns. Despite the expectation of a low, and… dlvr.it/RtSPZb pic.twitter.com/pdXPpv5lcN

    Room151 7 days ago

    What role will climate change have on the pricing of government bonds?: Sponsored article: Kerry Duffain finds that “vulnerability and resilience to climate change” have a significant impact on the cost of government borrowing. Ardea Investment… dlvr.it/RtNKv7 pic.twitter.com/wDjT31x4Yt

    Room151 1 week ago

    ESGenius: Slashing emissions will fuel green growth for decades: Sponsored article: Velislava Dimitrova argues that a big enough investment could mean transition to a low, or no, carbon economy can become a reality. The world needs to slash carbon[...] dlvr.it/RtKZJp pic.twitter.com/cd8S3ijERl

    Room151 1 week ago

    Prudential code: “Not perfect, but its heart is in the right place”: The new Prudential Code offers revised rules for borrowing. Nikki Bishop is sceptical it will work while Gary Fielding offers his support. Nikki Bishop I have been asked to give[...] dlvr.it/RtKZFh pic.twitter.com/OriN28lXcb

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story LGPS Pools Roundup: Brunel appointments, mandate for UBS, CFO for Central, credit fund launch
  • Next story Bob Swarup: The only certainty for investments is uncertainty

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.