The UK’s local government pension fund plans to back specialist sectors such as supported and regulated housing and SME financing with a focus in the south-west of England.
The UK’s Avon Pension Fund has signalled plans to introduce a dedicated ‘class agnostic’ local impact allocation to projects in the south-west of England within one to two years.
The move comes after the local authority pension fund announced it had committed 3%, or £160m (€186m), of its total assets under management to a local impact portfolio upon joining the Brunel Pension Partnership, a pool of local authority pension schemes.
Nathan Rollinson, investment manager at Avon Pension Fund, confirmed they are in the process of identifying suitable funds and opportunities to sit within it.
Rollinson said that a dedicated local impact allocation which would primarily focus on opportunities in the south-west of England was the “natural progression”.
“We want to maximise impact as quickly as possible and would expect the portfolio to be more fully built out within 12 to 24 months,” Rollinson said, adding that he expected the fund to make further announcements regarding investments over the coming months.
In its annual responsible investment report the pension fund revealed it had also committed £50m to renewable energy and transition assets in the region, building on the funds existing ‘impactful’ investments.
SME financing and housing
The portfolio will comprise of smaller allocations to specialist sectors such as supported and regulated housing or SME financing, according to the report. The Avon scheme made its first local impact commitment to a Schroders Greencoat managed fund, Wessex Gardens, in October 2023 along with five other Brunel Pension Partnership partner funds.
Aggregate commitments totalled £330m, with Avon Pension Fund committing £50m. The mandate will make long-term investments in renewable infrastructure and energy transition assets across the south-west of England, the fund’s report revealed.
The scheme comes at a time when the UK’s social impact investing market has surged in recent years, with the amount invested into tackling social issues increasing to £9.4bn (€11bn) in 2022, up from £7.9bn in 2021.
Speaking about the pension fund’s overarching strategy, Rollinson said: “Our local impact portfolio will be asset class agnostic. This decision was made to ensure we are not discounting opportunities capable of delivering required returns with high levels of impact.”
Initially he expects the portfolio to be made up of renewables and affordable housing as well as more niche opportunities in specialist sectors such as small business financing. The fund commited its first £50m to a renewables fund developed for the requirements of a group of underlying partner funds.
“Addressing environmental and social issues through the investments we make – both on a local and national scale – has been a priority for our committee for a number of years now,” Rollinson added.
