Until recently pension funds had been unable to enter the Build to Rent (BTR) market.
By their nature they look for secure, long-term returns and tend to favour low-volatile, less-risky opportunities compared with private investors.
This is the principal reason why they have not been able to compete with buy-to-let investors, who have been able to take on personal risk and leverage themselves often past 90%.
Pension funds cannot leverage and therefore any fund manager would struggle to make the returns. This, coupled with a tightly regulated sector has made the private rented sector a challenging sub-sector to place money.
But over recent years, traditional institutional investments such as sovereign bonds have hit record lows and there has been a growing trend of institutions increasing their exposures to real estate. Within the property divisions of the major institutions, there has been a growth in the desire to allocate to so-called alternative assets, such as Build to Rent.
This charge has been led in a large part from abroad and huge chunks of money are now supporting the sector, particularly from North America, where the asset class, known as multifamily, is mature and well understood.
A look at the Canadian Pension Plan Board’s arrangement with Lendlease or Oxford Properties deal with Delancey shows the levels of investment that North American investors think UK BTR justifies.
Not so long ago, Build to Rent’s estimated return of an average 4% net yield would have been considered too low for some investors. Less so now.
The major benefits are reduced volatility relative to other sectors and the obvious imbalance between supply and demand. Whereas other investments are driven by how the economy is fairing, people will always need a place to live.
It means this type of investment is less affected by the macro-economic environment that other asset classes are more tightly linked to.
As with any type of property investment, there will be hurdles to overcome, but they are less than the advantages.
And Although Britain is decades behind North America – which boasts a sizeable listed multifamily sector – there is every opportunity for such a shift to occur here as institutions seek to find a new home for their funds.