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!