The Cumbria Local Government Pension Fund has invested £35m (€43.9m) in a long-lease fund managed by Aviva Investors as part of its defensive strategy.
The pension fund has invested in the open-ended Lime Property Fund, which focuses on assets with average unexpired lease terms of more than 20 years. Aviva typically invests in assets where rents are either inflation-linked or have pre-agreed fixed uplifts.
Fiona Miller, senior manager for pensions and financial Services at Cumbria County Council, said it chose the fund for diversification and stable income generation.
The commitment, she said, was part of a “conscious strategy change” to address the issue of the plan’s maturing liability profile.
The fund, managed by Renos Booth, has had an annual income distribution of between 5.5% and 6% since inception in 2004. Aviva Investors said the fund now manages a £1bn portfolio of 58 assets across 11 sectors.
Aviva Investors said pension fund demand for long-term income streams continues as an inflation hedging strategy.
The premium earned from holding secure income assets relative to low risk fixed income assets remains ”considerable”, Aviva said.
UK long-lease property funds have enjoyed a period of intense demand from investors in recent years. In need of assets to match their liabilities, pension funds and insurers have sought out the funds for the inflation-proof, low-risk, long-term returns they offer, at a time when government bond yields have been close to zero.