National Housing FederationTreasury Management
Conference8 Oct 2014
Peter MorrisDirector of Pensions
Greater Manchester Pension Fund
Greater Manchester Pension Fund
Greater Manchester Pension FundCreated 1974 with GMC as the Administering Authority
Tameside became the Administering Authority in 1987following abolition of GMC
Largest Local Government Pension Scheme Fund in England and Wales
Over 400 employers including 10 Greater Manchester Local Authorities
Over 300,000 members with 100,000 employee, pensioner and deferred members
Assets over £16 billion
Successful fund with relatively high funding level (2013 valuation 90.5%) and relatively low employer contribution rates
Driven by long term good investment track recordGreater Manchester Pension Fund
GMPF Actuarial History1974 1989 2001 2013 Now
Employees 61,000 75,000 94,000 88,000 109,000
Deferred Members
198 14,600 34,700 96,000 111,000
Pensioners 15,600 42,200 67,000 92,000 108,000
% of LA employees
95 87 84 73
Employers 37 78 184 342 430
Assets £77m £2bn £6.3bn £12.6bn
£16.3bn
Surplus / (deficit)Er cont rate
n/a
10%
£225m
6.3%
£0.3bn
9.7%
(£1.3bn)
16.4%
Greater Manchester Pension Fund
Benchmark Asset AllocationMajor Asset Class Split
Property 10%
Bonds/Cash27%%
UK /Overseas Equity Split
Overseas
equities65%
UK Equities
35%
Bonds/Cash SplitO/S Corp
2%
UK IL10%
UK Corp 20% UK Govt
15%
Cash23%
Overseas Equity Split
Europe 28%
Japan15%
Pacific10%
Emerging 15%North
America32%
Public Equity58%
Alt Inv5%
O/S Govt10%
O/S IL5%
Credit15%
Greater Manchester Pension Fund
Local InvestmentLong history of investing locally within Greater
Manchester and the wider North West
Twin aims
• Commercial returns
• Supporting the area
Recently increased allocation to up to 5% of Fund value (approx £650m)
Fund is a long term investor, and holds belief that there is a lack of long term capital available, Greater Manchester conurbation offers opportunities that we are able to take advantage of and thus able to deliver on twin aims
Looking to build a diversified portfolio of assets over time
Greater Manchester Pension Fund
Current ApprovalsType of Investment Allocation
Greater Manchester Property Venture Fund Up to £300m
Investment alongside Evergreen Up to £50m
Residential Property Up to £100m
Invest for Growth Up to £50m
Aggregate Limit Up to £650m
Greater Manchester Pension Fund
Need for Rented Housing National Picture
Owner occupation has been in decline since 2003, with a corresponding increase in the private rented sector,
Household formation is fastest among groups who have difficulty becoming home owners
Changing employment patterns make owner-occupation more difficult to access.
Higher levels of personal debt restrict ability to gain mortgages
Greater Manchester Pension Fund
Need for Rented Housing Greater Manchester
Greater Manchester has seen a dramatic decrease in housing completions since the peak of the market in 2007/08. New supply is running at around 3,000 – 4,000 per annum rather than the roughly 9,000 - 10,000 per annum needed to meet demand.
Census 2011 figures show the private rented sector has grown by almost 70,000 properties since 2001 in Greater Manchester, from 10.7% to 17.4% of the total stock.
Greater Manchester Pension Fund
Case for Housing Investment
1) Is there a need for housing investment / Is there an investment opportunity?
- Direct v Indirect
2) Will such investment deliver a viable return?
3) Is there a means by which the Fund can effectively and efficiently invest?
Greater Manchester Pension Fund
Returns from Housing Investment for a Pension
FundHealthy returns on a risk adjusted basis
Strong Income Generation Regular Cash Flows
Strong Collateral
Potential to structure investments to focus on risk control or return generationEquity or fixed income instrumentsPayment ProfileSeniority in Capital Structure
Greater Manchester Pension Fund
Building around 240 homes in Manchester City Council Area 1/2 for sale 1/2 at market rent
Funding GMPF provides the capital (long term funding) to
finance the development Manchester City Council and HCA provides the 5 sites Financial viability assessed across the 5 sites –
facilitates development on sites
Aim to work with other LAs and apply the model across Greater Manchester
Housing : Matrix Homes
Greater Manchester Pension Fund
Financial Model Joint venture with Council
Investment is initially Fixed Income with a set interest rate and fixed repayment cash-flows
For rented homes there is a long term lease to a head tenant who manages the properties
Fund is not exposed to void and bad debt risks or other operational risks
There is a potential sale at the end of the lease which provides final cash-flow and return on equity to Council and Pension Fund.
Greater Manchester Pension Fund
DeliveryLegal structure - Limited Partnership
Key appointments Project Manager - MCCBuilder – Wates Living SpaceTenant – Places for PeopleSales Agent – Plumlife
Key Risk Initial sales programme
Greater Manchester Pension Fund
Building has Commenced
Greater Manchester Pension Fund
Building has Commenced
Greater Manchester Pension Fund
Summary Actively looking for investment opportunities in housing
that deliver commercial returns
We are building a diversified portfolio of local investments, housing is a key part of this
We have a long term perspective and can be long term holders of assets / investments Focus on long term returns
Focus for GMPF on Greater Manchester Area but model can be applied elsewhere…..
Its been challenging and demanding!