Property – Feature


linkage and portfolio diversification are the primary character- istics that we find attractive,” Clark adds. “Our portfolio is increasingly focused on relatively core, income orientated property investments – debt and equity – that help generate cashflows to meet our ongoing pension payments.” His fund sees property as an important investment opportunity at the present time. “In the current environment we feel cer- tain areas within real estate offer attractive and diversifying opportunities for the scheme, particularly to generate resilient, inflation protected income.”


The attraction of property is typically as a long-term invest- ment. A point made by James Agar, head of long income at PIC Capital, who, as a pension insurer, have a relatively low appe- tite for risk and timeframes that run over decades. “This dynamic requires an investment strategy that is carefully constructed to provide cashflows that match all future pensions payments,” he says. “One of the best ways to do this is by invest- ing in the long-term assets that the country needs, such as urban regeneration, social housing and build-to-rent,” Agar adds.


Property and society Here, property as an effective investment morphs into a real benefit for society as a whole, boosting the social pillar within ESG investment. “We are always looking to maximise our cash- flow matching and sourcing private debt investments enables us to sculpt the cashflows more precisely,” Agar says. “Because bonds have set maturities,” he adds, “we source pri- vate debt investments to ensure we have the right cashflows to match our pension payments every year. These investments are a great example of how we balance PIC’s purpose of paying our current and future policyholders with creating social value within our portfolio.” PIC’s investment in Miller’s Quay on the Wirral is a perfect example, Agar says, where, alongside Peel L&P and Wirral Metropolitan Borough Council, the insurer is developing more than 500 homes, a fifth of which will be affordable. “This investment is part of the wider Wirral Waters regeneration pro- ject to transform 500-acres of brownfield former-dockland into a thriving new community, which will create 20,000 perma- nent jobs and is one of the largest regeneration projects in the UK,” Agar says.


Property investment, in the style of Build Back Better, has then a clear wider societal benefit that will stretch well into the future long after the soundbite has been forgotten. “The infrastructure PIC finances also stimulate local economies, providing much needed investment and job opportunities,” Agar says. “Our investments often have an agglomeration effect and act as a catalyst for wider regeneration, breathing new life into communities by unlocking investment in the long-term.” Another important example in this regard is where PIC


In the near term, property investors will likely need to shift their focus towards assets with solid levels of rental uplift potential and


income growth. Christopher Babatope, Oxford Economics


invested £130m to fund the construction of Manchester-based New Victoria – its first build-to-rent project – in 2020. “Over the course of the development more than £40m has gone directly into Greater Manchester’s economy through local employment, businesses and material sourcing,” Agar adds.


Embedding sustainability


The S pillar of ESG can then underpin much property invest- ment, as long as it fits a specific society focus. Inevitably, prop- erty also pays an important part in the environmental element of ESG. In this way Clark shares and encourages the ESG ben- efits of property investment. “The asset class offers great opportunities to embed sustainability in a way that can be more tangible and easier to evidence than in equities or fixed income,” he says. “This is important to BTPS given its strong focus on sustainable investment and our 2035 net zero emis- sions ambition.” As part of this, BTPS has embedded a net-zero target in the objectives of its primary real estate manager and have seen strong year-on-year decarbonisation from its portfolio over the past few years.


In addition, and as further evidence of its society focus, the scheme has exposure to city-centre developments in Manchester, Leeds and Birmingham, where engagement with local commu- nities, education and councils creates positive social benefits. “A lot of environmental and social benefits can be achieved from property in a way that’s clearly aligned with generating attractive investment returns,” Clark says. So even in the most of testing of times, property can offer investors a multitude of opportunities, mixed with a variety of benefits.


Issue 117 | October 2022 | portfolio institutional | 49


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