Pension Insurance Corporation (PIC) is looking to make a “big play” in the build-to-rent (BTR) market and is expected to make its debut investment in the next two months.
The UK defined benefits pension insurer is looking at more than one long-term investment opportunity in the sector, according to a source close to the company.
PIC’s exposure to the residential housing market has so far been restricted to social housing and student accommodation. The company has invested more than £1bn in social housing debt and more than £500m in student accommodation debt to date.
PIC, which insures pension funds by either buying out the pension scheme or entering into a long-term agreement to match the fund’s liabilities, is looking to the BTR market as a long-term investment play to help generate income to pay pension premiums.
“The long-term cashflows from these investments provide suitable cashflows to back pension payments to our policyholders,” said Rob Groves, chief investment officer of PIC. “As our business grows, we expect to invest more heavily in long-term secure cashflow assets like this.”
BTR’s attraction as a long-term source of income has prompted several pension funds and investment managers to strike up deals in the first six months of this year. The Canadian Pension Plan Investment Board entered the UK BTR market in January through a £1.5bn joint venture with Lendlease. On a smaller scale, local authority pension funds such as Lambeth Pension Fund have looked to cash in on the perceived stable returns of BTR by investing in the sector.
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Jacqui Daly, director of Savills research, said investors looking for long-term returns are attracted to assets that provide a basic need, such as housing, education and healthcare, and are also linked to earnings.
“Everyone needs a home and if you lose your job, the last bill you will stop paying is your rent,” said Daly. “Average rents in England over the long term tend to be slightly higher than inflation and slightly lower than income. That’s why housing and rents attract investors that are often looking for 30-year or 60-year cashflows.”