Northern LGPS and Brunel Pension Partnership have invested £190m (€216m) in a new open-ended UK affordable housing fund managed by PGIM Real Estate.

PGIM Real Estate said including leverage, the newly launched UK Affordable Housing Fund has the potential to deploy up to £250m. The fund targets a 6-9% total return per annum, net of fees and costs.

Charles Crowe, the head of PGIM Real Estate’s UK transactions, said: “With a major supply/demand imbalance within UK affordable housing, PGIM Real Estate’s strong track record in this space provides a mutually beneficial opportunity for working people and families in the UK, as well as for income-focused investors.”

PGIM Real Estate made its first investment in UK affordable housing in 2016.

Paul Dennis-Jones, a senior portfolio manager at PGIM Real Estate, said the latest strategy strengthens the manager’s commitment to delivering positive sustainable solutions whilst creating value for its investors.

“There is a clear social need to be met in the affordable housing sector. Our deep global expertise in ESG, in combination with our long history of investing in this sector means we are able to build safe and quality homes to meet social demand and deliver long-term investment performance.”

Ged Cooney, chair of the £46bn Northern LGPS local authority pension asset pool, said: “Northern LGPS has a strong commitment to use the pensions of its members to seek to help solve societal issues whilst also obtaining appropriate risk-adjusted returns.”

Cooney said the UK has a severe housing shortage which urgently needs to be addressed.

“Patient long-term capital such as ours is well placed to help address this issue. We look forward to working with PGIM Real Estate and other investors over the coming years to develop the product and deliver an exceptional housing product to residents whilst also achieving a strong income-based return.”

Vanessa Jacka, an investment principal at Brunel Pension Partnership, which manages the investments of 10 UK local authority pension schemes, said the fund is intent on encouraging better practices, both environmentally and socially, in a housing sector where provision has historically been fragmented.

”PGIM Real Estate has a strong track record of raising standards in affordable rental and it is an area where the LGPS can provide long-term support whilst achieving appropriate investment returns.”

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