LPFA 'pushing' for creation of London housing fund

UK – The chairman of the £4.2bn (€5bn) London Pensions Fund Authority has said he is "very much pushing" for the launch of a London residential property fund, the result of "detailed" talks with the capital's mayor. 

However, while discussing the LPFA's interest in infrastructure after the provider committed £100m to the Pensions Infrastructure Platform (PIP) – a venture spearheaded by the National Association of Pension Funds (NAPF) and the Pension Protection Fund – Edmund Truell also appeared to distance himself from reports that a merger of London's Local Government Pension Schemes (LGPS) was in the cards.

Truell told IPE the proposed London Housing scheme would look to invest in all classes of housing – both social housing and "a level up from that". 

"I'm not sure we are going to be building too many £10m mansions," he added.

He said "very detailed discussions" with the Greater London Authority (GLA) – the capital's administrative authority, headed by mayor Boris Johnson – were ongoing and that several "major" pension funds were interested in "invest[ing] some serious money into housing".

Residential property is a fairly new asset class for most UK pension funds and a £20m investment by the London Borough of Islington’s pension fund into housing was hailed as a "landmark" investment late last year.

The Greater Manchester Pension Fund has also provided capital to fund the construction of nearly 250 residential units in Manchester, with land provided by the local council. Such cooperation between investors, councils and the GLA has been urged by Johnson's predecessor as mayor of London, Ken Livingstone.

Truell, the former chairman of the Pensions Insurance Corporation, further criticised the LPFA's heavy investment in Gilts and other low-risk asset classes.

"Bottom line is that if the pension fund continues to invest in Gilts, it'll run out of money. Full stop," he said, explaining that if higher investment risk was taken, then it would stand a better chance of closing its estimated £1bn deficit.

Of the capital provided to the NAPF's infrastructure venture, he said: "The PIP is offering access to deals that are generally up and running, so 'Free of construction risk' is the strapline.

"They should be relatively low risk and reasonable return deals," he added. "Ideal for someone like the LPFA to put some money into."

However, Truell divided the LPFA's future infrastructure investments into low and high-risk categories, stating that the higher-risk approach could be "a little bit exciting" for some contemporaries – and indicated that, as part of such a higher-risk approach, he would consider taking on construction risk.

"We'd expect to do some higher-risk infrastructure investment, perhaps in conjunction with a subset of PIP members or indeed with other people.

"I think it's the development phases or construction phases of a project where the money is really missing," he added.

He said that he would consider infrastructure projects across the globe, "but you might imagine our lords and masters will be quite keen if we did it in the UK".

Addressing reports that he was to "shake up" the capital's 34 Local Authority Pension Schemes (LGPS) by overseeing a merger of the funds, he said it was something he would like to see done, but was a project for the future.

He said that earlier proposals for the pooling of local authority pension assets were nonetheless still of interest. "I think the idea of pooling assets is gathering pace, let's put it that way.

"I think it is something where a number of funds are looking very seriously at it, but it is not a done deal," he said.

"On the other hand, from a political perspective, there is an enormous groundswell of 'This must be done' from the Mayor downwards."

He said if proposals for a consolidated management body went ahead, it should extend to liability management as well.

"Very few pension funds have a clue about liability management," he said. "The various hanging fruit would be plucked by having a centralized asset and liability manager."

Proposals to consolidate the London funds were discussed by the councils early last year, with the idea of an infrastructure fund backed by the councils criticised as "nothing but a ruse" to garner support from government for the merger proposals.

Lobby group London Councils discussed the ideas in more detail late last year, with PwC outlining a number of potential approaches.

These included the councils retaining control over individual asset allocation by launching a number of collective investment funds, launching a single legal entity overseeing all assets or the complete merger of all assets.