AUM in Action

LPFA Strengthens Place-based Housing Focus

London-based fund has invested more than £400 million in real estate across the capital, amid warnings over lack of private funding for UK property.

The London Pensions Fund Authority (LPFA) has underlined place-based housing investments in the UK’s capital as a key priority in its ‘Investing in the UK’ report, outlining the investments it has made across the country for the first time.

Approximately 14% of the LPFA’s total holdings are in commercial real estate in London – representing the largest single holding within the UK Local Government Pension Scheme (LGPS) fund – while 6% of its investments are in infrastructure and housing respectively.

Meanwhile the LGPS, which represents £7.7 billion (US$9.8 billion) in assets and counts approximately 97,000 members, has 80% of its housing investments in London. The fund’s UK infrastructure and real estate holdings across Greater London are worth a total £250 million.

“London is where the largest portion of our fund members live and work, so there is an attraction in understanding our role in investing in the community,” LPFA CEO Robert Branagh told ESG Investor. “It provides us with asset variety as part of our wider diversification strategy, so it’s certainly important to us.”

The report was released in collaboration with the Local Pensions Partnership Investments (LPPI) and advisory firm The Good Economy – which co-founded the Place-Based Impact Investing Network alongside the Institute for Economic Development and the Impact Investing Institute last year.

The Impact Investing Institute had previously made affordable housing one of its five pillars of place-based investing, describing it as a “cornerstone of community and economic development” and a “top priority”.

Many cities in the UK, including London, continue to face housing affordability crises, which have hit the younger generation the hardest. According to the Economics Observatory, while homeownership among 25 to 34 year-olds peaked during the late 1970s, it fell by half between 1989 and 2016.

In addition to the £250 million invested across Greater London, the LPFA has invested £150 million through the London Fund – a collaboration between LGPS Pools London CIV and LPPI.

The fund was created in 2020 to invest in three place-based impact investment pillars – housing, infrastructure and SME finance – with the ultimate goal of raising up to £500 million over several years. However, Branagh confirmed it had closed at £250 million.

The vehicle offers a double bottom line of both return and positive social impact, investing in residential property and affordable housing, community regeneration, digital infrastructure, and clean energy in London.

Through the London Fund, the LPFA has invested in projects including the regeneration of Shepherd’s Bush Market in West London, the redevelopment of the Saville Theatre, Virtus Data Centres, and Edge – a net zero development in London Bridge.

It has also invested in the dedicated residential investment vehicle Delancey and Oxford Residential (DOOR), which includes 3,000 homes under management, 1,126 under construction, and a further 3,000 in the pipeline. DOOR aims to have 12,000 homes in its portfolio within the next five years.

“The involvement of pension funds can help scale up planned regeneration projects, bringing new projects to life and encouraging interest from other investors,” said Branagh. “As well as providing a returns, this lifts up local communities and creates jobs, helping us manage the risks to our fund.”

Against the tide 

LPFA’s continued place-based investment in London housing bucks a trend noted in a new report from the UK Sustainable Investment and Finance Association (UKSIF). UKSIF warned that the nation’s housing sector was at risk of losing out on £31 billion in private investment, partly due to some foreign markets being perceived as more supportive of their sustainability goals.  

UKSIF polled 100 business decision-makers across the UK housing sector, representing £300 billion in turnover, 63% of whom said they either had or were planning to move investments out of the UK to a different market. Only 15% of surveyed firms said the UK was currently the most attractive market for green and sustainable investments.  

Further, the report noted that decarbonising and making the UK’s housing stock more energy efficient could result in £39 billion in savings by 2030 – including £9.3 billion resulting from avoided emissions. A total 93% of respondents said they would increase their investment in the UK if the sustainability policy landscape improved.  

Earlier this month, LPFA published its Net Zero Progress Report, which summarised the progress has made to date. As of June 2023, around 4.4% of its assets were identified as “green” – up from 3% in June 2022. According to the report, it has reduced its emissions intensity by 75% compared its 2019 baseline and more than 54% of its portfolio is under net zero targets and monitoring.

The organisation also recently released its new Responsible Investment Policy, aiming to ensure that ESG considerations were fully embedded in its decision-making and stewardship. 

The policy noted that the LPFA had greater investment exposure to social risks than environmental risks. It also flagged social cohesion as a prominent short and medium-term global economic risk – both directly for economic productivity, and indirectly in terms of its impact on the ability to implement public policy to address global challenges.

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