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Infrastructure Social Housing & Property Investment
 

Infrastructure Social Housing & Property Investment

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    Infrastructure Social Housing & Property Investment Infrastructure Social Housing & Property Investment Presentation Transcript

    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013Social HousingInfrastructure, Social Housing & Property Investment ConferenceRobert Gardner27th June 20131
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013 2Managing the End GameGreatest Challenges Facing Pension Funds
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013Managing the End GameThe Seven Steps to Full Funding3Design an efficientinvestment strategyDestination for agilehedging strategyTransparency to maketimely decisionsArticulate clear objectivesand constraintsMission StatementTo help our clients achieve full-funding with the minimum level of riskCLEAR GOALS &OBJECTIVESACCESS TO LDIHUBLIQUID ALPHA & BETASTRATEGIESLIQUID & SEMI-LIQUIDCREDIT STRATEGIESILLIQUID CREDITSTRATEGIESILLIQUID ALPHA & BETASTRATEGIESONGOINGMONITORING
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013 4LDI 1.0Liability ImmunisationLDI 2.0The LDI “Manager”LDI 3.0Holistic ALMManaging the End GameIntegrating Social Housing into your LDI StrategyInterest rate swapsNominal giltsInflation swapsIndex-linked giltsGilt repo and TRSSwaptionsUnfunded asset exposuresCorporate linkersSophisticated optionoverlaysFlight Plan ConsistentAssets
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013Managing the End GameSeven Steps to Traditional Asset Classes5Step(2)LDI(3)Liquid α & β(4)Semi-Liquid Credit(5)Illiquid Credit(6)Illiquid α & βCollateralManagementEquities Corporate Bonds Infrastructure Debt Insurance-LinkedHedging Multi AssetAsset BackedSecuritiesSocial Housing Debt Private EquityActive LDI Sovereign Bonds High Yield Direct SME Lending Infrastructure EquityGilts Commodities / CTA Leveraged Loans Mezzanine Finance Unlisted PropertyCurrenciesEmerging MarketDebtDistressed DebtHedge Funds withLonger Lock-UpsLiquid Hedge FundsCommercial RealEstate DebtLong Leases /Ground Rents
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013Managing the End GameThe Role of Liquid and Illiquid Credit6CorporateBondsDirectLendingCorporateLinkersInfrastructureDebt / LongLeases / SocialHousingInfrastructure Debt / Social HousingGiltsCash
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013 7Secured Leases Social HousingInfrastructure Ground RentsLDI 3.0LDI 1.0LDI 2.0LDI 1.0LDI 2.0Managing the End GameIntegrating Social Housing into your LDI Strategy
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013 8• Access to high-quality, inflation-linkedcash flows offering attractive real yields .• Accessing such returns in traditional wayshas become increasingly difficult in therecent market environment.• Pension funds will also take into accountadditional considerations such as theinvestment structure and the risk/returnprofile of each specific investment.Benefits for Pension Funds• Opportunity to access a new andpotentially large source of financingwith a long-term horizon.Benefits for Housing AssociationsWin/Win OpportunityManaging the End GameWhy Invest in Social Housing?
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013Managing the End GameInvesting in Illiquid Assets9Source: Red Manager Forum Survey
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013Social Housing is a form of low cost, rental housingtypically provided by local councils and non-profitorganisations called housing associations.10• Housing associations issue inflation-linked debtsecured on a pool of housing units to finance activities• Interest payments are matched by rental income that istypically increased yearly at RPI + 0.5% (the legislationindicates this may change).• Illiquidity gives rise to a premium return over publiclytraded bonds by the same or similar issuers.• Enjoys a large degree of government support, withrental payments often heavily subsidised• Combines social responsibility with returnsSocial Housing investment featuresBackground• Traditionally financed by state support and bank loans• The financial crisis imposed losses and higher capitalrequirements on banks, limiting their ability to lend• The government has proclaimed an era of fiscalausterity and is reducing spending• This ‘funding vacuum’ has given pension funds anopportunity to step in and provide financingManaging the End GameBackground to Investing in Social Housing10
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013Managing the End GameInvesting in Social Housing11Pension FundInvestorRegistered SocialLandlordsCapitalInterest paymentsRentPayments(linked toinflation)Capital usedto fund andmaintainsocial housesIndicator Private SocialProportion of householdreference persons (HRP) <35 yrs old.50% 20%Size of sector (number ofhouseholds)2.5 mm 4.0 mmMean weekly gross incomes(HRP + partner)£493 £247Mean weekly rent £136 £72Median length of time incurrent residence1.5yrs 7.8yrsProportion of tenantsreceiving housing benefit21% 62%Proportion of HRPs workingfull time61% 22%BenefitsSecured LendingLDI HedgingImplicit UK government &regulatory supportSocially responsible investmentSource: Housing in England 2007-08 Report published in Sep-2009 by Communities and Local Government
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013Managing the End GameAccessing Social Housing through Pooled Opportunities12Range of Assets:• Social Housing• Infrastructure• University Assets• Commercial Assets• Ground RentsReturns Enhancing and Liability Matching Assets (REaLM) Social Housing FundRange of Assets:• Social HousingAsset/Fund Features:• Maturity: 20-50+ years• Inflation linked• Illiquidity premium• Typically equity stake• Higher public sectorexposureAsset/Fund Features:• Maturity: 30-40 years• LPI linked• Illiquidity premium• Debt stake• Focus on RegisteredSocial Landlords
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 201313Source: Canaccord Genuity, RedingtonSocial HousingRisk and Return Profile13Mix of Social Housing Type
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 201314Social HousingRegulatory Concerns14- Recent political discussion has been erring towards government legislation that will change the inflation linkage ofthe rental income from social housing from RPI to CPI. The repercussions of this change are twofold:• Ratings agencies may decide to downgrade social housing debt.• Investing in social housing is no longer a direct hedge for pension fund liabilities.- European legislation has changed the way the government pays grants and provides support in the form of housingallowance. Instead of paying the Registered Social Landlord (RSL) directly some of the money is now paid to thetenant. This creates a risk that the money does not reach the housing association and therefore presents a risk to theborrower.
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 201313-15 Mallow Street London EC1Y 8RD Telephone : +44 (0) 20 7250 3331 www.redington.co.ukContactsRobert GardnerFounder & Co-CEOTelephone: +44 (0) 20 7250 3331robert.gardner@redington.co.uk15THE DESTINATION FOR ASSET & LIABILITY MANAGEMENTDisclaimer For professional investors only. Notsuitable for private customers.The information herein was obtained from varioussources. We do not guarantee every aspect of itsaccuracy. The information is for your private informationand is for discussion purposes only. A variety of marketfactors and assumptions may affect this analysis, andthis analysis does not reflect all possible loss scenarios.There is no certainty that the parameters andassumptions used in this analysis can be duplicated withactual trades. Any historical exchange rates, interestrates or other reference rates or prices which appearabove are not necessarily indicative of future exchangerates, interest rates, or other reference rates or prices.Neither the information, recommendations or opinionsexpressed herein constitutes an offer to buy or sell anysecurities, futures, options, or investment products onyour behalf. Unless otherwise stated, any pricinginformation in this message is indicative only, is subjectto change and is not an offer to transact. Whererelevant, the price quoted is exclusive of tax anddelivery costs. Any reference to the terms of executedtransactions should be treated as preliminary andsubject to further due diligence .Please note, the accurate calculation of the liabilityprofile used as the basis for implementing any capitalmarkets transactions is the sole responsibility of theTrustees actuarial advisors. Redington Ltd will estimatethe liabilities if required but will not be held responsiblefor any loss or damage howsoever sustained as a resultof inaccuracies in that estimation. Additionally, the clientrecognizes that Redington Ltd does not owe any party aduty of care in this respect.Redington Ltd are investment consultants regulated bythe Financial Services Authority. We do not advise onall implications of the transactions described herein.This information is for discussion purposes and prior toundertaking any trade, you should also discuss withyour professional tax, accounting and / or other relevantadvisers how such particular trade(s) affect you. Allanalysis (whether in respect of tax, accounting, law or ofany other nature), should be treated as illustrative onlyand not relied upon as accurate.©Redington Limited 2013. All rights reserved. Noreproduction, copy, transmission or translation in wholeor in part of this presentation may be made withoutpermission. Application for permission should be madeto Redington Limited at the address below. RedingtonLimited (6660006) is registered in England and Wales.Registered office: 13-15 Mallow Street London EC1Y8RDhttp://twitter.com/robertjgardnerhttp://uk.linkedin.com/in/robertjgardner
    • Private & Confidential Infrastructure, Social Housing & Property Investment 27 June 2013RedingtonGet To Know Us Better With Our Publications16