London Pension Fund Targets Real Estate

(May 24, 2010) — The 3.5 billion London Pensions Fund Authority (LPFA) said it is considering investments in residential property as the government urges UK institutional investment in the sector.

The investment could be the first in a string of UK pension funds investing in the residential real estate sector. According to Financial News, the Homes and Communities Agency has been working with fund managers to build investment vehicles that pensions could invest in. Those fund managers include Aviva Investors and Legal & General.

The UK government is encouraging real estate for institutional investors for the first time since the 1960s, Financial News reports, yet a spokesman for LPFA said negotiations with fund managers were still at an early stage. Funds have shown heightened interest in this asset sub-class following the financial crisis, with the majority of deals involving commercial real estate. While UK institutions have tended to avoid domestic residential property, cash-stripped property developers may be increasingly willing to offer discounts to institutional investors who will buy in mass.

There are about half a dozen firms out there that have indicated interest in doing this sort of thing,” said Mike Taylor, chief executive of the London Pensions Fund Authority, to the news source. “We certainly would not want to be the only investor, and we would prefer a vehicle with a focus on London. He noted that the fund was looking to allocate about 1% of its portfolio, or about 35 million, to residential property.

In April 2010, Chair of Genesis Housing Group Adrian Bell criticized local authority pension schemes in the UK for not investing in housing in the country.