Newham Pension Fund backs co-investment housing fund

UK - The London Borough of Newham Pension Fund is to invest in a new residential real estate fund run by Mill Group.

The move is the latest sign the housing sector could begin to figure significantly in UK pension funds' property allocations.

Local authority pension funds have been criticised for not investing in affordable housing, but Newham's move is the latest evidence to suggest the practice could gain traction.

Earlier this year, the London Pension Fund Authority revealed it was considering a 1% allocation to residential.

The Newham Pension Fund is supporting the Mill Group's new fund, which aims to provide institutions with a low-risk route to invest in the residential property sector in the UK.

The fund will enter into co-investments with individuals in the UK looking to buy a house, allowing individuals to acquire a share of 25-50% of the property while the fund acquires the balance.

The individual can increase the percentage of the property owned at any time, but in the meantime will pay an ongoing investment fee on the portion owned by the fund.

Alec Kellaway, chair of the committee representing the Newham Pension Fund, said: "This is an exciting new fund that will focus on revitalising housing in London and the South East using a new form of property tenure.

"While the new fund delivers a good investment case, it is appropriate for public sector pension funds to support new initiatives that will enhance people's lives and local communities."

The fund is set for launch in the first quarter of 2011, initially in the capital and the South East, where buyers face considerable difficulties raising the capital sufficient for house deposits, stamp duty and consultant fees.

David Toplas, chief executive at Mill Group, said: "Once again, Newham has demonstrated a willingness to explore innovative, alternative assets as a route to delivering good returns but also benefiting local communities.

"We are confident the fund will allow a large number of people who are trapped in the private rental sector - a sector whose supply can no longer support consumer demand - or are still at home with their parents, and allow them to become home owners."

Mill Group said the fund would provide investors with superior indexed income returns and capital gains from UK housing, a "proven asset class that has outperformed commercial property, equities and gilts over the past 30 years".