Falkirk Council Pension Fund and Kent County Council have both committed £30m (€36.4m) to UK property funds.
Falkirk has given £30m to fund manager Hearthstone Investments to invest in Scottish social and affordable housing as the sector shows signs of attracting investment.
The commitment from Falkirk boosts Hearthstone’s Housing Fund for Scotland, a new fund for pension schemes looking to invest in local housing via fixed-rate corporate bonds issued to registered social landlords. Properties will then be let to a housing association on an operating lease for an initial period of 10 years.
The fund is scheduled to launch later this year, with the first phase of investment from Falkirk providing funding for around 300 new social and affordable homes. UK property manager Places for People will deliver the first stage of the fund’s investments via Scottish subsidiary, Castle Rock Edinvar.
Investment between social and affordable housing will “flex”, Hearthstone said, to ensure overall returns from the fund stay within a pre-defined range. Falkirk is the second local government pension fund to invest with Hearthstone, after Islington Borough Council gave the fund manager £20m in January last year.
Linda Selman, partner at Hymans Robertson, said a number of funds have looked at the potential to invest in social housing – but few have committed so far.
“One of the reasons (for that) is the challenge in finding suitable pooled vehicles and/or managers,” Selman said. “We would expect social housing to form only a small part of a fund’s strategy – say 1% to 2%. It is essential to get a healthy degree of diversification within any social housing investment.“
Falkirk’s move into social housing investment serves two purposes, its committee convenor, John Patrick said.
“This is an investment that will deliver solid returns for our fund and social good for communities,” he said. “Social benefit and financial returns are both important to funds like Falkirk.”
Meanwhile, Kent’s superannuation fund has given a £30m mandate to Kames Capital for its UK Active Value Property Fund. The closed-end fund, which has also been given £10m by Molins Plc’s UK pension fund, typically buys small, secondary properties on long leases.
The total £40m is the fund’s second close following an initial £115m raised at launch in October last year. Kames said the original £115m has been committed, with properties in the £2m to £10m range bought by the fund, which has a seven-year life. Kames is targeting returns of 8% to 10% for the Jersey Property Unit Trust which has an option to extend for a further two years.