Local Pensions Partnership begins pooling £1.2bn of real estate assets

Local Pensions Partnership (LPP) has begun pooling the real estate assets of UK local authority pension schemes into a fund that is expected to reach £2bn (€2.19bn).

The LPPI Real Estate Fund has already aggregated over £800m of directly held UK properties and is expected to recieve a further £460m in indirect investments over the coming months.

The latter include investments in international real estate and UK residential funds.

Between them, LPP’s three members – Lanchashire County Pension Fund, the London Pensions Fund Authority and Royal County of Berkshire Pension Fund – have £1.7bn of real estate assets.

LPP did not disclose whether the remaining £440m of assets would remain outside the fund, but Chris Rule, CEO of LPP, said the fund was expected to grow “to approximately £2bn over the next three years”.

In February, Rule told IPE Real Assets that LPP was close to pooling its members’ property assets but admitted that some “isolated assets” would not make it into the fund.

The new fund, structured as an authorised contractual scheme (ACS), is the latest to be launched by LPP, which has already set up a number of vehicles covering specific asset classes, including infrastructure, fixed income, credit, private equity and equities.

LPP is one of eight ‘pools’ tasked with consolidating and managing the investments of the 89 local government pension scheme (LGPS) in England and Wales.

Real estate is thought to be one of the hardest asset classes to pool, due to its illiquidity, the heterogeneity of assets and the costs that can be incurred from transferring them.

In February, Rule said: “The big challenge with property has been not wishing to be hit by unnecessary additional costs and charges – namely, stamp duty.

“Liquidity and real estate don’t necessarily go hand in hand, so we’ve been toiling with this problem and trying to look at different fund vehicles. We’ve actually made very good progress over the latter half of last year, working with our advisers, but also directly engaging with the regulator and HMRC. We now in a position where we are comfortable moving forward with an ACS fund structure.”

The pooling of LGPS schemes has prompted questions among the real estate fund management industry as to whether the pension funds will become more direct and international with their real estate investments as they consolidate.

LPP said: “The move offers the schemes a more diversified exposure to a wide range of UK and international real estate.

“The fund brings improved scale and other efficiencies in an asset class that can generate stable and resilient income.”

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