Southwark’s retirement scheme, which is worth more than £1.5bn, is closing in on its 20% allocation, or around £300m, which is currently invested in supermarkets, restaurants, offices and warehouses. “This is not a get in and get out strategy,” strategic director of financial and governance Duncan Whitfield says. “This is get in, grow the capital and get the revenue returns,” he adds.
Property is core to Southwark Council’s retirement scheme strategy for good reason. “Bricks and mortar in the hands of astute managers has a great record of holding value,” Whitfield says. “It doesn’t necessarily matter if it is in the middle of a city, if it is commercial, retail or housing; there is significant evidence of the certainty of value and return on property.
“Property is a key component of a wider investment strategy,” he adds. “It surprises me that we don’t see the same exposure in other funds.”
MANAGING THE ASSETS
All decisions in Southwark’s property portfolio are made by its managers. “They pretty much have a free reign,” Whitfield says. “They are given a target and have the flexibility to invest.”
He appears more than happy to leave it to the managers, which is an attitude that he has developed during the past decade. Southwark’s managers started buying distribution hubs by motorways in 2008.
At the time Whitfield wondered why they were buying big sheds at the side of the M1, but now they “cannot build enough of them”. “That is the manifestation of the value that these low cost, high value acquisitions have.”
However, another scheme has moved in the other direction when it comes to making investment decisions in this space. Anna Rule was hired by RPMI Railpen in January 2017 to manage the scheme’s property mandate in-house. She hired a team of experts and soon set to work building the processes and procedures to end the scheme’s reliance on third-party managers.
“We feel [bringing it in-house] is a better alignment with our overall objectives,” Rule says, also pointing to a cost advantage. “It reduces principal agent issues and ultimately there is a lower cost.”
