£400bn in council pension assets ready to back framework for investing in housing and homelessness

It also notes that public funding alone cannot generate the growth required to meet the government’s policy ambitions, and public and private capital need to work together to unlock co-investment opportunities and amplify local impact.

The UK government has called for pension funds to invest in Britain. The Pensions Schemes Bill includes a “backstop” power to force pension funds to invest in UK markets. Under a voluntary commitment, 17 large pension providers have pledged to invest at least 5% of their assets in UK markets by 2030, provided the assets are sufficiently attractive.

According to the paper, the LGPS, with almost £400bn worth of assets today and projected to reach £1tn by 2040, has the potential to be a “cornerstone of the national effort to close the investment gap” and build a more resilient domestic economy.

Investing in areas such as housing can provide inflation-linked returns for pension funds. Pension funds must ensure their portfolios make financial returns. But within that framework, pools could combine “large, scalable mandates” in sectors such as infrastructure, clean energy and housing with smaller allocations to, for example, regional small and medium-sized business finance funds.

Investments could also be made in “high-impact opportunities that offer lower but still acceptable returns”, for example in relation to tackling homelessness or social issues. These targeted investments may be less efficient to deploy, but they are “vital” for nurturing local ecosystems, supporting innovation and maximising local impact.

There has been an increase in local investing across LGPS pools in the past few years, including in housing. London CIV launched a UK Housing Fund in 2023, which has allocated £530m to affordable housing across the country via five external fund managers. 

In January, Greater Manchester Pension Fund allocated £100m to L&G’s affordable housing fund, which will be spent on homes in the North West.

Other investors in affordable housing funds in recent years include the Cornwall Pension Fund, City and County of Swansea Pension Fund and Devon Pension Fund.

The guidance was developed with the support of LGPS pools representing nearly all administering authorities in England and Wales. Other contributors to the white paper included membership organisation Pensions UK, and fund managers Legal and General, Gresham House and Foresight Group.

Strategic authorities are seeking to produce local growth plans that respond to priorities in their regions, such as affordable housing, infrastructure and clean energy. Council pension funds will consider local growth plans when developing their strategies.

Jim McMahon, who was minister for local government and English devolution until the recent reshuffle, said: “I am particularly keen to see the LGPS use its scale to support UK investment and regional growth.

“Building on its local role and networks, including its relationships with local and strategic authorities, regional mayors and devolved administrations, it is well placed to support a pipeline of housing, key infrastructure and regeneration projects.”

The paper’s key recommendations include a tailored local investing approach, so that administering authorities and pools take a context-specific approach; collaboration between the LGPS, strategic authorities and central government agencies to deliver investment at scale; and establishing a common impact reporting standard within the LGPS sector.

It says four foundations should be implemented to achieve successful local investment: fiduciary discipline; alignment with local and regional priorities; an integrated impact lens; and clear governance between pools, administering authorities and stakeholders.

A practical delivery model would include strengthening origination capacity; ensuring pools act as informed clients; applying rigorous due diligence; risk management and value-for-money tests; deploying a flexible toolkit of investment products and vehicles; and establishing dual reporting of financial impact outcomes.

Andrew Dawber, founding partner of Civitas Investment Management, said: “By investing in new supported-living accommodation, [special educational needs] schools and genuinely affordable or social housing, these strategies can help meet growing demand for essential services doing more than strengthening local economies; they deliver long-term social value by improving the quality and availability of essential services, creating opportunities, reducing inequalities and enhancing outcomes for individuals and communities.”

The paper also sets out three principles to guide effective impact reporting: reporting which aligns with locally defined opportunities and needs; pools which build on existing responsible investment; and ESG frameworks adapted to capture place-based outcomes.

Dominic Curtis, chief executive of registered provider Simply Affordable Homes, said: “We believe it requires a commitment to cross-sector public and private partnership to have any chance of generating the investment and building the level of homes needed in the UK to address its housing crisis within a generation.”

Cath Webster, chief executive of Thriving Investments, the investment arm of housing association Places for People, said: “We can evidence how place-based investments can deliver strong financial returns while driving positive outcomes for local communities.

“We’re proud to support this strategic framework, which provides essential guidance for the sector as it responds to the government’s local investing requirements.”