Scotland seeks housing boost from pension funds

LIVERPOOL Thu Oct 7, 2010 7:24am EDT

LIVERPOOL (Reuters) - Pension funds could profit from investing up to 1 billion pounds in Scotland's social housing, thanks to steady rental incomes mainly stemming from residents' welfare benefits.

Alex Neil, minister for housing and communities for the Scottish government, told delegates at a pension fund managers' conference that rents charged by social housing were predictable and supported by housing benefit in 50-75 percent of cases.

"I am not asking for investment of 50 million (pounds) to 100 million, we would like investments of 500 million pounds to 1 billion pounds. That is the scale of investments that we require," Neil told delegates of the National Association of Pension Funds conference.

Infrastructure assets are often used by investors to reduce the impact of recession as they are resilient to economic downturns while steady revenue streams from rents or tolls can offset inflation.

"We can give you not only financially stable returns but also returns that can compete with gilts," Neil told delegates.

He said Scottish housing associations have robust balance sheets and demand for housing remains strong with empty properties accounting for less than 1.5 percent of the housing stock.

The Scottish government committed 1.7 billion pounds to social housing for a three year period to 2011, but had not yet tapped pension funds for it, he said.

The minister said housing investments are under the jurisdiction of an independent regulator, the Scottish Housing Regulator, whose role is being reinforced in a bill before the Scottish Parliament.

Britain is a popular destination for infrastructure investors as many assets in the transport, water and power sectors have been privatised and are open to foreign ownership.

Gas and water utilities, the Associated British Ports, and Birmingham International Airport have attracted investments from large and high profile investors such as the Ontario Teachers' scheme in Canada.

British pension funds, however, lag behind Canadian and U.S. counterparts in infrastructure allocations, due to their comparatively smaller sizes.

Investments in infrastructure have also left investors nursing hefty losses. A group of investors including pension funds are threatening to take to court fund manager Henderson (HGGH.L) following a 60 percent loss posted by one of its infrastructure funds.

(Reporting by Cecilia Valente, Additional reporting by Greg Roumeliotis; Editing by Chris Vellacott, Sharon Lindores)