The UK-based investor hopes to build on the growing interest by pension funds to invest in addressing the country’s housing crisis, according to the head of its homelessness property funds.
UK social impact investor Resonance is seeking to broaden the investor base for its funds targeting homelessness in the UK, as it prepares to launch an evergreen fund following the imminent close of its latest vehicle, Chris Cullen, head of homelessness property funds at Resonance, told Impact Investor.
The current National Homelessness Property Fund 2 (NHPF2) – Resonance’s fifth fund since the launch of its homelessness strategy in 2013 – has raised £130m (€155m) so far. That figure is expected to rise to £175m with two yet-to-be-announced new investments ahead of its close in coming weeks.
Among the investor group are English regional authorities, local government pension schemes and social investors, including Greater Manchester Pension Fund, Liverpool City Region Combined Authority, Bristol City Council and Better Society Capital. In January, Resonance said Gloucestershire Pension Fund had invested £30m in NHPF2.
Resonance uses the investment to buy properties, which are leased to partner organisations, such as charities as housing associations, with expertise in dealing with homelessness in the given area.
The fund refurbishes the properties, and the housing partners rent them to the homeless or those in previously living in temporary accommodation, while providing tenants with support to help take them out of homelessness permanently. Just by having a fixed address and some stability, people are able to improve their prospects of access to employment and banking services.
Ambition to scale up
Since 2013, the asset manager has helped provide homes for over 3,600 individuals and families in more than 1,100 properties, bringing in funding from more than 30 impact investors, according to its recently published social impact report. NHPF2 currently owns more than 350 properties and supports almost 500 individuals or families, operating in the Greater Manchester, Liverpool, Bristol, Oxford and London regions.
That activity translates into around £400m of assets under management today. Cullen said the objective was to get to £1bn in the next five years.
The need for such investment is growing, prompting local authorities to turn to social investors to help tackle it. In the financial year 2023-24, over 320,000 households made homelessness applications to local authorities in England alone, according to UK government data. That represents an increase of 8% over the previous year. The number of rough sleepers on UK streets has also been on the rise in recent years.
“I don’t think that, when Resonance launched the funds 12 years ago, they ever anticipated that the problem would be bigger now than it was then. We’ve estimated that at least £20bn of capital is required to solve the problem,” Cullen said.
He joined Resonance three years ago, having previously spent 13 years as a financial markets’ trader, running currency option trading teams at J.P. Morgan and Barclays Capital.
A big attraction of the move to Resonance was the potential to scale up, according to Cullen. To that end, he is now keen to expand the investor base for the homelessness funds.
Local government pension funds are obvious partners and are becoming increasingly interested. Cullen said Resonance funds are now large enough to offer the scale required for pension funds to invest, and the fund manager is also acquiring a long-enough track record to meet the exacting requirements of pension fund investment committees.
Resonance is also starting to be able to demonstrate a “route to market” for pension funds as well as exits for the investors in previous funds by redeploying capital to buy properties from those funds for inclusion in the current fund, Cullen said.
Investor pool
A wider pool of investors could include foundations seeking to use a portion of their endowment to get into impact investing, as well as insurers, for which the longer-term secure returns on offer could be attractive, according to Cullen.
Resonance also hopes to tap into funding from the UK’s defined contribution (DC) pension scheme sector. Consolidation of that sector under UK legislation due to be enacted in 2025 should pave the way for DC pension funds to make a more diverse range of investments.
DC pensions are those where contributors amass a pension pot based on how much is paid in by them and/or their employers, in contrast to traditional defined benefit (DB) schemes, where the pension is based on salary and length of time worked for an employer.
“We’ve done quite a lot with DB local government pension schemes, but we’d like to work with DC schemes. Hopefully, with plans to consolidate the DCs, there might be an opportunity for Resonance,” Cullen said.
The investments made by the homelessness funds generate income from government and local authority payments that cover basic housing costs for the homeless. Typically, 80% of the income goes to the fund, with the other 20% remaining with the housing partner to finance services for tenants and maintaining properties. That translates into income stream that allows the fund to target returns of 3% annual yield and 6% IRR.
Cullen admitted that may seem more like a “decent” targeted return rather than a “stellar” one when compared to some other types of impactful housing investments, such as some funds investing in specialist supported housing. However, he contended that funds investing in areas where more support is required for tenants may come with greater investment risk compared to the more stable and secure returns on offer from the Resonance funds. Resonance’s tenants are typically more self-sufficient and likely to move on to other housing in a few years, he said.
Evergreen fund plans
Resonance’s next offering is due to be an evergreen fund launched towards the end of 2025.
“Investors have told us they would like the next iteration of the fund to be evergreen. Historically, we’ve done closed-end funds, but we always felt like we were on a bit of a journey over time, as we’ve done longer and longer funds,” said Cullen.
The hope is that this new evergreen fund will provide a vehicle to consolidate some of the assets from existing funds, which would effectively provide a seed portfolio of properties for the new fund.
“This is an exciting next stage for us, which we think will be attractive to the pension funds and those new investors we are looking for,” he said.
Cullen said the fund was virtually unique within the UK in its focus on transitional housing to move people out of homelessness, so it has been keen to swap notes on what works and does not work in the sector with counterparts across Europe, for example via the European Federation of National Organisations Working with the Homeless (FEANTSA), an umbrella NGO for the sector on the continent.
“We do actually engage quite a lot with our peers in Europe, where there is a growing group of asset managers that are trying to make a difference in homelessness,” Cullen said.
