Agenda item
Asset Allocation Training Recap - Affordable Housing
Minutes:
Mr Steve Turner from Mercer introduced the asset allocation training and said this was to provide members with training and information. He said the Committee was not being asked to decide about the asset class. Mr Turner said two managers were present who would be making a presentation on their funds.
The Committee then heard from Mr Andrew Grigson and Mr Paul Dennis-Jones from PGIM. They presented slides showing the benefits of investing in the affordable housing asset class and described the features of their fund. They said there was a variety of rental homes to invest in, from social housing to private rented sector. Mr Dennis-Jones said there was opportunity to invest long-term in the locality of Tower Hamlets, if that was something the Pensions Fund wanted to do, or it could diversity its investment and invest more broadly.
In response to questions from members the following was noted:
- Cllr Blake stated the term used to describe the types of households under social or S.106 types was inaccurate and said these were inter-changeable. She said it was a concern that such terminology was being used. She said this was inaccurate and therefore should be changed.
- In response to what were the barriers to investing in this asset class and why the Pension Fund should invest via an investment Fund rather than go directly to a Housing association, Mr Dennis - Jones said looking at the London market, homes were mostly pre-sold or bought up by housing associations. He said building contractors had an existing relationship with housing associations which excluded others from getting involved. In addition, there was debate as to if Funds should compete with housing association over limited stock.
- In response to what the likely risks were and the returns achieved for properties of older stock, which could entail maintenance issues or fire safety issues such as cladding, Mr Dennis-Jones said a lot of the Pension funds liked investing via a Fund or a pooled Fund, as it cannot be seen who has invested. He said their fund focussed on new build, low rise stock, which had been underwritten for a ten-year period.
- Mr Dennis-Jones said it was up to the Pension Fund as to whether they wanted to invest locally or in another region. Both options were available with their funding strategy.
The Committee then received a presentation from CBRE Investment Management. Ms Alice Wilcox, Mr Andrew Davey and Mr Ben Fruhman provided an overview of the affordable housing market, sharing slides on affordable housing, the data that informed their fund and the benefits of investing via an investment fund and/or pooled fund. They said if the Committee was interested in investing locally there were options available, such as being part of the main fund but also establishing a ‘side-car’ investment designed specifically for Tower Hamlets.
In answer to questions from members the following was noted:
- In reference to the last slide, Councillor Bustin asked how the fund invests in just the social housing element of the asset? Mr Davey responded saying they had purchased a complete single block within the tower blocks shown on the slide.
- Councillor Blake asked what advice they would give to Pension Funds looking to invest in their locality and if this was a good idea. Mr Davey responded saying this carried some geographical risk. However, if as suggested by Ms Wilcox, the ‘side-car’ option was taken, then this would ensure the risk is diversified as some of the funds would be pooled in the main portfolio.
- In respect to investing with Registered Providers and the risk to returns due to their financial circumstances, Mr Andrew Davey said the aim of the fund would be to manage that risk and to consider an alternative if required, to mitigate the risks.
- Mr Ben Fruhman added that there were some very good Registered Providers who had found themselves in financial difficulties due to debt liabilities. He said the aim would be to help the Registered Providers by providing them with equity with a shared risk approach.
The Chair thanked the presenters from PGIM and CRBE Investment for their presentations.
Mr Steve Turner from Mercer summed up the presentations made by the two Fund managers and said this was for training and education purposes. He said this asset class would be a good financial investment for the Fund, with a 5-6% return per annum achievable. He said it also would have a good social impact, as the investment would be in social housing.
Mr Turner said both Investment Funds introduced different approaches to accessing the market. He said investing in a diversified fund would be the most straight forward way of investing in this asset class. However, if a more targeted approach was required this would be viable but would be more complicated and it would involve more work for officers and the committee.
The Chair thanked Mr Turner for arranging the training and said the Committee was not being asked to decide yet.