UK – M&G is looking to extend the sale-and-leaseback model to new asset classes, including social infrastructure and development projects in partnership with local authorities.
Ben Jones, who manages the M&G £1.35bn (€1.56bn) secured property income fund, believes the model offers an alternative to more traditional debt finance, allowing local authorities to sell assets to fund new developments.
Although Jones declined to comment on early-stage discussions with local authorities, he said: "A range of issuers are looking at sale-and-leaseback deals – and the list is growing by the day.
"The more diversified your sources of potential transactions, the better. We're not relying on a single source of opportunity."
The long-lease fund – which has 90 mainly UK pension fund investors – attempts to outperform the long-dated bond benchmark but with less volatility than either bonds or equities.
Although it does not rule out acquiring existing assets, Jones pointed out that "most of these things start out as either sale-and-leasebacks or development funding projects because that's how you get people on 25 or 30-year leases."
He added: "Given that most investors, like us, are long-term holders of assets, there is unlikely to be that much secondary trading – and where there is, it tends to be when the leases get shorter."
The fund is also currently considering four "de-risked" and "inherently profitable" development projects.
Jones suggested that the likely future structure of PFI projects – amid demand for social infrastructure – would have a similar profile to sale-and-leaseback deals.
He downplayed the potential political risk in local authority and social infrastructure deals in the wake of recent parliamentary criticisms of public sector PFI contracts.
"In a number of cases, the people who do these deals need the approval of the regulator," he said. "That's a good way to eliminate any political risk.
"We're obviously careful about the transactions we enter into – especially about making sure tenants can meet their obligations.
"The last thing we want to do is enter into a transaction we don't think will last the distance. If the deal stacks up, it can't be attacked with any degree of credibility."
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