Legal & General launches LPI Income Property Fund

Legal & General has launched a new £500 mln (EUR 570 mln) fund product which the UK financial services group said offers Defined Benefit pension schemes an innovative way to invest in property coupled with a secure source of income, primarily government-backed, all with inflation-linkage. The LPI (Limited Price Inflation) Income Property Fund is a partnership between Legal & General Investment Management and Legal & General Property.

Legal & General said the fund will provide pension investors with an attractive alternative to traditional index-linked gilts and bonds, which produce average real yields of around 1.5%. The fund aimsto deliver a real (i.e. inflation-hedged) yield in excess of 4% per annum. To achieve this, the portfolio will be structured around properties whose value is predominantly derived from their leases.

The fund will hold UK assets which will primarily be let to government or quasigovernment tenants for a minimum of 20 years, with their income streams linked to inflation (LPI-linked rental uplifts). These assets provide secure, inflation-linked income streams ideally suited for pension fund investors, combined with significantly lower volatility than would be expected from a typical property fund.

Legal & General said the fund will take advantage of the sale-and-leaseback assets currently being offered to LGP through its unique and extensive access to on and off-market opportunities, leveraging its in-house property expertise and relationships with banks and public sector bodies. The fund will be diversified both by sector class and geography across the UK and will have a target size of £500 million, with no gearing, either direct or indirect.