EUROPE - UK pension schemes have committed £200m (€233m) to a social housing debt fund targeting a minimum 30-year return 2% above the retail prices index.

The fund will lend to quality-assessed UK social housing associations that make up around 9% of the UK residential market.

Fund manager M&G pointed to a lender's market, with 1,700 housing associations in the UK struggling to secure long-term funding.

The withdrawal of international banks from the sector has significantly increased demand.

M&G already provides loans with as much as 40-year maturities as one of the largest non-bank lenders, with a holding of £2bn in quasi-sovereign debt issued by housing associations.

Loans made by the fund will be secured on borrowers' property assets.

M&G also invests in corporate bonds issued by housing associations.

For pension schemes the fund offers a relatively secure inflation-linked, long-term income stream from providers that are either credit-rated or the fund manager has assessed as creditworthy borrowers.

The fund marks a return to a long-term funding model before the early 1990s 'big bang' that effectively priced long-term funders out of the market with a flood of cheap credit.

Even so, one of the difficulties for M&G has been to persuade pension funds of the model's viability because few trustees or managers with responsibility for asset allocation have direct experience of the pre-bank-funding model.

M&G said the new fund would be "one of several" funds targeting social housing debt, though a source at the fund manager distanced the fund manager from emerging residential equity funds.

He added that, while he could not dispute that it was in some sense a residential real estate fund, it just "happened to be" one.