LPFA’s strategy has also changed. It now has a national portfolio of direct property, reducing its reliance on pooled funds. The downside to moving to an almost exclusively direct propertyportfolio is the expense.
Indeed, Southwark’s property management fees doubled to £694,000 in the 12 months to 31 March 2017. “Direct property is more expensive than pooled investing, but performance is net of fee,” an upbeat Whitfield says.
Tomlinson describes property fund fees as “pretty competitive” when compared to those charged for infrastructure and private equity pooled investments. “Depending on the type of manager, the fees can be competitive,” he says.
THE ALTERNATIVE PATH
In the property market, housing has been seen as something of a final frontier among professional investors. Unlike its commercial counterparts, residential has traditionally not been seen as an institutional asset. The issue has been a lack of scale, a barrier that institutions are tackling.
RPMI Railpen has around £200m invested in housing built for the rental market. The scheme will not touch a scheme unless it has at least 100 units. It owns five assets in this market and, once they are all open for business, they should have about 1,000 beds.
“Residential is an area where there is a strong income stream,” Rule says. She describes it as a burgeoning asset class and that it is a good hedge against inflation. LCPF kicked off its debut foray into housing by part-funding a 119-apartment building in Hayes, West London four years ago, while LPFA is building rental units at Pontoon Dock by the Thames Barrier.
“Private rental sector schemes are attractive in the major metropolitan areas,” Tomlinson says. “It is hard to find the scale in provincial towns.”
Southwark Council has some residential exposure through £15m and £20m private rented sector (PRS) funds. It also has similar sums in two opportunistic funds, which invest in distressed assets, including real estate. “These are the buy it, do it up and get out schemes, which we are not comfortable with in the other [parts of our] scheme.”
