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Manchester council has agreed plans to invest 拢25m from a local authority pension fund to develop nearly 250 homes in a move that could put in place a pipeline of institutional investment in housing and infrastructure.

The plan, agreed by the council last month, means public land will be put in for development on five sites across the city. The Greater Manchester Pension Fund will contribute 拢25m in equity investment in return for revenues generated through market rents and house sales. Under the partnership the council will retain a 20% stake, with the remaining 80% held by GMPF.

The model will finance, in the first stage, about 244 homes for sale and private rent, the council said. Contractors will be appointed from the Homes and Communities Agency鈥檚 delivery partner panel.

锘縔ou鈥檙e not able to move quickly - pension funds have long-term investment strategies

Nigel Keogh, CIPFA

The partners anticipate the pilot will attract further institutional investment, bringing forward a pipeline of development over the next five to 10 years in Greater Manchester.

The move comes as the government continues talks with pensions funds about increasing institutional investment in UK infrastructure.

In the autumn the chancellor George Osborne said he wanted to raise 拢20bn from pension funds as part of a plan to boost investment in UK infrastructure and called for council pension funds, worth around 拢140bn, to invest up to 拢10bn in the UK.

Last week, Leicestershire council鈥檚 pension fund allocated 拢70m - about 3% of the fund鈥檚 portfolio - to two infrastructure funds, but these mainly invest overseas.
The London Pensions Fund Authority (LPFA) invests about 拢150m in infrastructure, but Mike Taylor, LPFA chief executive, said only a 鈥渟mall proportion鈥� of this was focused on the UK.

He said Osborne鈥檚 拢10bn target was an 鈥渁spiration鈥� but ultimately it was up to pension funds to decide how to invest in accordance with their own investment strategies.

鈥淚f returns are attractive and the investment case can be made with appropriate governance structures in place, then we would look at the possibility. It depends on the offer,鈥� he said.

Nigel Keogh, Chartered Institute of Public Finance and Accounting pensions manager, said infrastructure and other 鈥渁lternative鈥� asset classes were increasingly attractive to pension funds, but remained a relatively small proportion of overall investment at about 7%.

He said that for the total investment in infrastructure to rise to 拢10bn would effectively require at least a doubling of the current level of allocation, which has taken ten years to reach.

鈥淎 number of pension funds may be looking at infrastructure as an alternative to bonds but you are not able to move that far that quickly because pensions funds have long-term investment strategies in place.鈥�

He said conflict of interest regulations meant the level a pension fund could invest in an enterprise led by its own members was capped, limiting the potential of models such as that developed in Greater Manchester. 

Pension funds would need investment vehicles focused on regional or national infrastructure to fulfil Osborne鈥檚 ambition, he said.