Mansion House Accord brings hope to UK’s institutional real estate industry

The Mansion House Accord announced this week is a landmark voluntary commitment by 17 of the UK’s largest workplace pension providers to boost both pension savers’ returns and investment in the UK economy. By pledging that at least 10% of defined contribution (DC) default pension funds will be invested in private markets by 2030 – with at least half of this directed specifically to UK private markets – the Accord aims to galvanise investment in the UK. It builds on a similar pledge, known as the Mansion House Compact, in 2023.

It could have significant impact – signatories collectively oversee over £252bn in assets, representing about 90% of active DC pension funds in the UK – and so has been welcomed by the real estate investment industry, which could stand to benefit.

Ion Fletcher, director of policy at the British Property Federation, says: “DC pensions schemes are the future of pension money in the UK, and we support any initiatives that enable this capital to enhance our buildings, towns and cities.”

Paul Richards, CEO of the Association of Real Estate Funds, says: “We are pleased to see the Accord extend the previous Compact to explicitly include real estate as part of a balanced private markets portfolio. Alongside reforms to the planning system and moves to address skill shortages, this will give a boost to the ability of our industry to play our part in solving pressing issues like net zero and affordable housing.”

John Forbes, an independent consultant who specialises in the structuring of real estate funds and regulation, welcomes the Accord. “It continues and develops the policy of the previous government,” he tells IPE Real Assets. “And indeed, facilitating investment in illiquid assets by DC pension schemes has been in progress as a policy initiative for a decade.”

But the effectiveness will depend on the implementation of what have been termed “critical enablers”, including a “pipeline of UK investment opportunities, which the government has agreed to facilitate” and changes across the DC pensions industry (see Mansion House Accord ‘critical enablers’).

“Removing the obstacles that have impeded DC schemes from making these investments has been a long process,” says Forbes. “I have been involved in the lobbying on various aspects of this since 2012, so it is very promising that we now seem to be close to this working in practice, allowing for a successful transition from DB to DC pension investment.”

Critically, the Accord is also voluntary – despite the government previously considering setting mandatory measures. “The Accord is a voluntary statement of ambition. Veiled threats of compulsion from the government if it does not happen are significantly less helpful.”

Forbes says: “The Accord makes it clear that this investment will only happen if it is to the benefit of policy holders.” Fortunately, there is good reason for DC pension schemes to invest in real assets. “There is a compelling investment case for real estate and infrastructure, and this has long been a key allocation of DB schemes,” he adds.

“Private markets play a fundamental role in shaping the world around us through long-term investment in real estate and infrastructure projects,” M&G CEO Andrea Rossi said this week, “reaffirming” the investment manager’s commitment to the Accord. “By enabling and encouraging greater investment into these assets, individuals could benefit from enhanced returns, greater diversification and better value by having their pensions invested in this way.”

Not a minute to soon?

Real assets fund managers welcome the timing of the Accord, with UK real assets having undergone a period of repricing during the recent period of rising interest rates. Hugo Llewelyn, CEO of social infrastructure specialist Newcore Capital, says: “We think, in practice, there are great opportunities for the sorts of assets under consideration in the UK, starting with 2025 prices, so this should lead to a positive outcome all round.”

UK-based institutional real estate fund managers will certainly be keen to see more capital flowing into their market at a time when they experienced strong outflows from maturing and closing DB pension schemes.

“Encouraging DC capital to flow into the sector, without forcing it in, will help replenish and encourage liquidity, which drives pricing and transparency,” says Dan Berger, CIO at Delancey Real Estate. And the liquidity effect could go beyond the UK. “A more liquid and transparent real estate market will help encourage overseas investment, enabling domestic institutional investment to create a snowball effect,” he says.

“It could also stimulate further investment into the UK beyond London. While global investors typically concentrate on London, local pension funds can leverage their regional expertise to identify attractive investment opportunities in other parts of the country.”

Marc Gilbard, executive chairman and Co-CEO of Moorfield Group, says the fund manager “has never experienced a strong appetite from UK institutions to invest in UK real estate through the private closed-end funds markets”. But, now, “more UK institutions allocating domestically will likely enhance the focus on the UK real estate market from multiple perspectives, thereby improving the asset class liquidity over the medium to long term and also generally improving the UK’s real assets sector”.