Border to Coast Pensions Partnership, which pools funds from 11 local government pension schemes across the UK, is significantly increasing its real estate investment capacity with the launch of two global funds.
The Global Core Fund has launched with an initial £870 million ($1.1 billion; €1 billion) committed by the local government pension schemes of Durham, Lincolnshire, South Yorkshire, Surrey and Tyne and Wear. According to an announcement, legacy allocations from participating pension schemes will be transferred to the core fund over approximately two years during its initial phase, after which the vehicle will be open to annual subscriptions from all funds in the LGPS pool. The fund is targeting a return of 6 percent per year over a 10-year period from investments in income-producing real estate globally.
The Global Value-Add Fund has received £370 million in commitments from partner funds representing Bedfordshire, East Riding and Tyne and Wear. It will invest over a three-year period initially, targeting a 10 percent return over 10 years.
Remaining pension funds in the Border to Coast pool that have yet to commit to either fund are Cumbria, North Yorkshire, Teesside and Warwickshire. Border to Coast expects further commitments to take the combined total value of both funds to more than £1 billion.
Border to Coast is the largest LGPS in the UK with approximately £58 billion in investments, of which £40.3 billion is managed directly by the partnership as of March 31, 2023. The investor has a £12 billion private markets investment program, which first launched in 2019, and made £1.7 billion of new investments during 2022-23.
The 11 local pension funds in the partnership collectively invest approximately £4 billion in directly and indirectly held property. The Leeds-based investor has committed capital to global real estate funds in the past managed by Blackstone, Brookfield and Fortress Investment Group, according to PERE data. This includes $302 million to Blackstone Real Estate Debt Strategies V, which invests in North America and European real estate debt opportunities and reached a third close on $3.7 billion in June 2023, PERE data shows.
Border to Coast’s head of real estate, Alistair Smith, said in a statement it was “tremendously exciting to be able to offer new investment opportunities and a new asset class for our customers.” Greater control over investments, responsible investing and reduced costs were all cited as benefits of the pooled effort to invest in global real estate.
The investor is currently developing a UK real estate fund with a launch targeted for 2024. In June, it was announced that Edinburgh-based manager Abrdn had been appointed to support the launch and portfolio management of the UK proposition. At the time, Smith described UK real estate as “a fundamental asset class for our Partner Funds’ wider investment strategies.”
LGPS and real estate
Border to Coast is not the only UK LGPS pool to announce a direct real estate product launch this week. LGPS Central, which manages approximately £55 billion of pooled assets from eight local pension schemes across the Midlands, has launched a UK Direct Property Fund with a target to invest up to £500 million in UK real estate. The open-ended fund was seeded by commitments from the pension funds of Leicestershire and Nottinghamshire, and is open to receive further commitments from partner funds. The fund will be managed by London-based manager DTZ Investors. According to LGPS Central’s 2023 annual report, it had a 7 percent allocation to property as of March 31.
In addition to Border to Coast and LGPS Central, there are six other LGPS pools in the UK: ACCESS, Local Pensions Partnership, Brunel Pension Partnership, London CIV, Northern LGPS and Wales Pension Partnership.
Other recent real estate activity by these investors include ACCESS (A Collaboration of Central, Eastern and Southern Shires) appointing CBRE Investment Management in November to manage two new property mandates: a UK core mandate of approximately £1.25 billion in capacity, and a global real estate mandate of £550 million. Within private markets, real estate was the first illiquid asset class to have been considered for pooling by ACCESS.
Many of the UK LGPS have long invested in property, but according to Iain Campbell, a senior investment consultant for defined benefit investment at consultancy firm Hymans Robertson, the poor relative performance of commercial real estate in recent months means many UK pension funds are underweight to the asset class and are considering bringing allocations back up to strategic levels.
Campbell told PERE pressure is also increasing from the UK government for the LGPS to make greater use of pooling for all investments, including real estate. “Real estate has proven tricky to pool in some regards, as transferring investments LGPS funds already hold into the pool, or selling investments to invest cash in a pooled solution, will incur significant costs,” he explained.
“This is eased when pools provide solutions that will see new money, which doesn’t necessitate funds selling down current property holdings, invested, for example a residential real estate fund being set up for funds to invest in the asset class for the first time. By pooling assets together, funds will be able to gain access to a wider spread of investment types, potentially including some specialist areas.”
Campbell has observed a particular uptick in interest in residential real estate, driven by a desire for both diversification and impact.
Indeed, earlier this month, London CIV announced it had committed £150 million to UK affordable housing through its LCIV UK Housing Fund in 2023. This included a £100 million commitment to CBRE UK Affordable Housing Fund in May, and a £50 million commitment to Octopus Affordable Housing Fund in December.
Back in October, Northern LGPS committed the majority of capital for the £250 million debut fund closed by Macquarie Asset Management’s specialist residential manager Goodstone Living, which focuses on UK multifamily build-to-rent, as reported by PERE.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: 
