UK - UK pension funds need to catch up with their continental counterparts and ditch outmoded perceptions of domestic residential, according to Quinton Hill-Lines, managing director of fund management at Grainger.
His comments came as the firm concluded a round of fundraising for its G:Res UK residential fund with a £15m (€22m) investment from Mitsubishi.
Pension fund investors in the £159m fund include LGPI, the €23.6bn Finnish local government pension fund, British Airways Pension Fund, and the Universities Superannuation Scheme.
"For years, British pension funds have had a problem with residential. It's an emotive subject and residential property managers have often been perceived over the years as dodgy operators. That's one of the reasons why we went to continental European investors," Hill-Lines told IPE Real Estate.
"It's also a technical issue. Residential is always seen as low net rent, and with a low return - though over three, five and seven years it's delivered the same return as commercial. From the point of view of diversification, it's an interesting asset class," added Hill-Lines.
More than 90% of the fund's assets are located in London and southeast England, although Hill-Lines did not rule out investing in residential across the market.
"London is a more stable market and promising in terms of earnings potential, growth and housing shortages. But there are 1,000 different housing markets across the UK and we don't rule out any of them," he said.
"Central Birmingham is oversupplied so we probably wouldn't be looking there but if we felt Leeds was dynamic, we'd buy."
The firm's German operation is also considering setting up a residential fund targeting that market.
"We're always looking at potential acquisition targets - but only if they'll deliver for our investors," said Hill-Lines. "Glossy brochures are fine but if the fund doesn't make money, they'll leave us."