Legal & General has tapped its pension risk transfer business to provide £100m (€120.6m) of long-term debt financing to its affordable housing arm, secured against the income stream of a UK-wide portfolio.
The affordable housing business, which was launched in April 2018, has to date been financed through L&G’s balance sheet.
L&G said the £100m deal “opens the door for UK pension money to back the provision of much-needed affordable housing” and was the first transaction “to generate attractive matching-adjusted, compliant direct investments from affordable housing for its growing annuity portfolio”.
Earlier this year, Ben Denton, managing director of Legal & General Affordable Homes, told IPE Real Assets that it expected to open up its investment programme to third-party investors for the first time this year, adding that the “level of interest is very significant”.
A consortium of external investors is providing £175m of development finance.
Nigel Wilson, CEO of Legal & General and a backer of “inclusive capitalism”, said: “Legal & General’s continued activity in the affordable housing sector demonstrates our unique ability to create real assets which match our long term pension liabilities, recycling the UK’s hard-earned savings and pensions to support those most in need in society.
“We have already directly invested over £22bn into new homes, urban regeneration, clean energy and transport infrastructure. Bringing in pension fund capital gives us the scope to do even more.”
Simon Century, head of affordable housing at Legal & General, said the investment from the L&G Retirement business would help it bolster its pipeline, which stood at nearly 3,500 homes across the UK.
The L&G Retirement business works with trustees and sponsoring companies of defined benefit pension schemes to settle their pension obligations and secure members’ benefits.
Last year was a record year in the UK pension de-risking market, with an estimated £50bn worth of transactions completed, including longevity swaps.