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Making changes
to a portfolio to fit a maturing pension scheme

Pensions & benefits

How we helped our client make changes to their real estate portfolio to better fit the requirements of a maturing pension scheme

Our client wanted a more income-focused approach to their property investments, so we introduced an inflation-linked real estate approach.

The background

Our client, a £2bn pension scheme, was looking to make changes to their £100m legacy property portfolio. The portfolio consisted of c.20 segregated properties managed by a third party. Given the relatively small lot sizes and regional bias, performance had been below expectations following the financial crisis. We felt that a real estate portfolio that better matched the maturing liability cash flow profile made more sense for them.

Our solution

We proposed an inflation-linked approach for their real estate portfolio, specifically properties with long-term leases (20 years or more) where rental income had a guaranteed contractual-link to inflation.

We believed that this strategy was best implemented using a collection of pooled commercial real estate funds, and recommended that the client appoint a “fund-of-fund” manager to implement it.

What did we do?

  • We helped the trustees understand the merits of an inflation-linked approach and why it was a better fit for their maturing scheme.
  • We identified a suitable “fund-of-fund” provider to implement the strategy.
  • We worked with the appointed provider on the portfolio guidelines, restrictions and permitted investments necessary to deliver the RPI+2% target.
  • We provided advice on the legacy manager’s proposals to sell-down the client’s segregated properties, using cash raised to build the new portfolio.

The results

The legacy portfolio was sold gradually over a 24-month period. Prospects for smaller lot size property improved over this period, so it was an opportune time to sell. The “fund-of-fund” manager used sales proceeds to invest in several inflation-linked property funds, including (balanced) long-lease commercial property, student accommodation, leisure centres and ground rents.

The new portfolio has outperformed the RPI+2% target by 4% pa since inception in 2013.

Working with us

In this video, some of our clients share their experiences of working with us. Find out more about our client promise here.

How we can help

Our team works with trustees and sponsors of pension schemes to help them maximise their investment returns, while ensuring risk is well managed.