(September 18, 2012) — Pension Insurance Corporation has invested £50 million in a project to help solve the housing shortage in the United Kingdom and take advantage of the aversion to long-term lending by the banking sector.
The company, which specialises in pension buyouts and de-risking solutions, has bought a £50 million investment grade bond issued by Raglan Housing Association, which owns and manages 12,320 homes in 95 local authority areas in the UK.
Housing associations are independent, private sector, not‐for‐profit bodies that provide rented homes at lower-than-market rates. There have been no bankruptcies within the sector
Mark Gull, co-head of asset-liability management at Pension Corporation, said: “As our portfolio continues to expand, we are constantly looking at ways of further diversifying risk. Long term investments of this nature are a very good fit for us as they are high credit quality and provide a good match for our long term liabilities.”
Gull said the company had written around £1.1 billion in pension de-risking business this year so diversifying its portfolio away from government bonds, high-grade corporate bonds, and cash was an important next step.
“We will be looking at other investments in this sector and we hope that this is the first of many investments of this nature. As banks continue to pull back from long-dated funding we are very happy to work with housing associations, to help them meet their funding needs.”
Gull has been vocal in his criticism of the Bank of England’s quantitative easing policy. He has argued that instead of buying government bonds, which serves to drive down yields and push up most domestic pension liabilities, the country’s central bank should buy other types of credit from banks’ balance sheets as they try to rid them of long-term illiquid debt, according to regulatory compliance.
Pension Corporation said housing association and infrastructure debt were becoming more important for institutional investors because of this phenomenon.
Rob Gardner, co-CEO of investment consultant Redington, and one of aiCIO’s top 25 Knowledge Brokers, recommends his clients take a close look at infrastructure projects as a means of matching liabilities with a stable return profile.
Gardner said: “The big banks – the traditional providers of infrastructure finance – have cut back their exposure to infrastructure enterprises, creating opportunities for pension funds to step in and invest. These illiquid assets carry a premium so [they] offer better rewarded risk, however, some funds may be constrained by liquidity requirements.”
Last week, Dutch pension fund investor PGGM revealed it had bought a 60% stake in the UK’s largest student housing landlord, University Partnerships, from bulge bracket bank Barclays. The deal was estimated to be worth £840 million.