UK - Pension funds in the UK are being encouraged to consider financing social housing as an alternative to inflation-linked bonds.
Investment consultancy Redington Partners and fund manager M&G have both identified a lack of available funding for UK housing associations as an opportunity for investors to earn long-dated, inflation-linked interest payments on their capital.
In its report Social Housing: The foundations of an investments opportunity for pension funds, Redington said: "This has the potential to be a great opportunity for UK pension schemes and a timely source of long-dated funding for housing associations."
M&G said it was looking into the possibility of launching an investment product pursuing this strategy.
It would be similar to its UK Companies Financing fund, a vehicle that allows pension funds to lend directly to medium-sized UK businesses.
Reports in the press suggested M&G would roll out the fund in the third quarter, although a spokesman for the company said it had only discussed the proposition with pension funds and did not have anything concrete in the pipeline.
He added the most interest was coming from local authority pension funds.
The London Pension Fund Authority is an investor in M&G's UK Companies Financing fund, and Philip Jones, investment manager at the fund, said he had discussed the new proposition with the manager.
The £3.5bn (€4bn) local authority fund recently announced it would build up a 1% allocation to residential property in the UK (See earlier IPE Real Estate article: LPFA could start wave of investment in UK housing), but Jones said M&G's proposition would not be applicable.
"This is a proposition that is not that dissimilar from their other fund," he said.
"I wouldn't call it a housing fund under any circumstances - this is in effect a fixed interest potential investment.
"We are not sure how it would fit into our strategy. I have spoken about the fund, but we haven't made any decision.
"But it wouldn't be against any residential housing allocation."
Redington said social housing debt was just one opportunity it was looking at in identifying investments that could help pension funds de-risk their portfolios while meeting funding targets.
It said social housing debt was a "key example" of such an asset.
"Housing associations have suffered over the last few years from the effects of a private finance shortage," it added.
The idea and opportunity is for housing associations to issue long-dated, inflation-linked debt, providing them with long-term funding in line with their inflation-linked rent while offering pension schemes inflation-linked assets at attractive spreads over gilts for the risk - a win-win for housing associations and pension schemes."