Camilla Ritchie: ESG opportunities in bricks and mortar

Growing part of the investment market could soon have its own sector

The investment management industry has done much in recent years to emphasise the important governance role the industry plays, asking those difficult questions of business leaders and helping them become better organisations – increasingly socially, as well as from a shareholder value perspective. And so they should – according to the Investment Association (IA), UK asset managers own roughly one third of the value of shares in UK Plc’s.

Yet where the impact is especially tangible and interesting, arguably, is when we look at those sectors investing directly in the fabric of society. From my perspective as a sustainable investor, one of these key areas comes courtesy of the closed-ended sector (apologies, IA) in the form of investment companies investing in social housing.

Bricks and mortar with a social conscience

These companies can be found in the Association of Investment Companies (AIC) Property Specialist sector, although I like to think of them as bricks and mortar with a social conscience (or even better, social infrastructure, rather than property – apologies, this time, to the AIC). While our investment management team look to some of the property specialist investment companies as one of the ways they might achieve inflation linkage, with long term leases, I do the same but with an SRI tilt. And that’s where social housing comes in.

The property investment companies with a social housing theme probably have three strands – primary care (health service related), supported living (and I hold three of these – Civitas Social Housing, Residential Secure Income and Target Healthcare) and specialist healthcare.

Targeting the UN Sustainable Development Goals

We have tended to focus on supported living because we genuinely see it as filling a social gap, not to mention one of the UN’s Sustainable Development Goals for sustainable cities and housing. Yes, the sector offers long contracted rental income which should be uncorrelated with the UK’s economic fortunes (with housing associations paying rent to the Reits). But more crucially, it also provides high quality accommodation, often for vulnerable people, who have a statutory right to quality accommodation which can also meet their often complex needs in terms of supported living. Government supported housing stock is insufficient, so the secondary market has to step in.

We also like this strand of social housing because it tends not to develop and manage social homes directly, but works in close collaboration with registered providers (essentially local authorities and housing associations) and they are therefore lower down the risk spectrum for us. That’s not to say there aren’t risks – vulnerable people need strong protections, and this is another reason why it is so important that appropriate providers are selected.

Infrastructure and Budget 2018

October’s Budget was interesting from a social infrastructure perspective, with Hammond announcing that for first-time buyers in shared ownership schemes stamp duty relief will be extended to any home that costs up to £500,000. Another property investment company held in the 7IM Sustainable Balance Fund, Residential Secure Income, has just bought a shared ownership property portfolio which chimes very well with this announcement.

Unlike the supported housing Reits, this investment company has become a registered provider itself, allowing them to take advantage of the grants that are offered to encourage shared ownership provision. Shared ownership has been around for 30 years, but this is the first time investors have been able to buy publicly quoted investment companies that invest in shared ownership.

Break away sector?

The Property Specialist investment company sector has come a long way in a relatively short space of time – just 12 years – and currently has around £9bn total assets under management. AIC data suggests that it is relatively recently that the sector has really taken off. Out of 17 investment companies, over half have been launched over the last five years. I don’t think it’s unrealistic to watch this space for more.

I’d also expect some sector reclassification at some stage to reflect the huge success story of the sector (much like the renewable energy infrastructure funds broke away from the wider infrastructure investment company sector in 2013). Currently a medley of social housing, student property, storage and supermarket storage, I think it’s time for those ‘bricks and mortar with a conscience’ type companies to have their own moment in the sun. For me, they really do represent the City at its best.

Camilla Ritchie leads on the 7IM Sustainable Balance Fund

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