UK - Ealing local authority pension fund is mulling a residential proposal from Mill Group following scheme's decision to invest 10% of its overall portfolio in commercial real estate - its first foray into property.

The mooted £10m (€11.5m) allocation to UK residential is understood to focus on high-end residential lending and to be a pet project of the council leader following a presentation made by Mill Group.

The proposal will now go to the local authority's investment subcommittee for a decision.

"It's still at the high political level," said a source at the £610m pension scheme.

Mike Wisgard, a spokesman for Mill Group, declined to comment on ongoing discussions with the scheme, though he said talks were "progressing rather rapidly".

The proposal centres on the group's 'investors in housing' proposition, which targets potential London homeowners who can afford a mortgage, but are unable to persuade a bank to give them one.

Wisgard said: "Pension funds will have different views and different advisers, but the interest in residential has increased significantly over the past few months.

"Given stock market volatility and uncertainty in other markets, residential is a very attractive proposition."

The Ealing pension scheme will tender for the commercial allocation via a pooled vehicle in the next few weeks.

Its investment subcommittee took the decision to invest in UK commercial 18 months ago in a bid to diversify risk within a portfolio exclusively comprising equities and bonds.

"It's taken this long to get round to it," said the source. "When the decision was made, yields on commercial property looked attractive." 

In addition to improving its risk profile, the scheme needs to diversify to generate sufficient returns to meet its liabilities.

Its value has dropped £40m from £650m at the last valuation.

However, to date, the scheme has made no decisions on diversifying beyond the 10% allocation to real estate.

Any decisions on allocating to alternatives will be made at a strategic review in the near future, when the investment subcommittee will re-evaluate the scheme's risk portfolio and the options available to mitigate residual risk.

"They haven't got further than that," said the pension fund source.

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