The Pension Protection Fund (PPF) has been revealed as the third-party client behind M&G Real Estate鈥檚 拢230m acquisition of an office building in Manchester let to RBS.
Last month, M&G announced it had acquired two RBS offices for more than 拢306m: 1 Spinningfields Square and 1 Hardman Boulevard in Manchester. The former was acquired on behalf of insurer Prudential, but CIO Barry Kenneth told IP Real Estate that the PPF had acquired the latter through a co-investment.
The PPF, a 鈥榣ifeboat fund鈥� for defined benefit pension schemes in the UK, provided 拢230m and Prudential provided 拢100m.
Kenneth said the co-investment was made to enable the PPF to invest in large property assets where competition is less strong.
鈥淭here are not too many people that can bid for a 拢330m asset, but are a lot that can for a 拢50m asset,鈥� he said.
鈥淭here [are] an awful lot of funds going for these assets at the moment.鈥�
Kenneth added: 鈥淭he easiest way to get the assets for what we want to pay for them is to extract ourselves away from the major competition. If we can co-invest with annuity companies then we will set up a couple of avenues where we can do that.鈥�
The investment in Manchester comes under the PPF鈥檚 new 鈥榟ybrid asset鈥� strategy, which is designed to enable the institutional investor to invest in a wider range of assets that might fall outside the traditional asset allocation silos.
Historically, the PPF allocated 70% of its assets towards cash and bonds to match liabilities, with 30% in risk assets aiming for a LIBOR-plus 1.8% outperformance target.
It has now established a 12.5% allocation to hybrid assets that provide liability matching and outperformance. Cash and bonds will now account for 58%, alternatives 22.5%, equities 7% and hybrid assets 12.5%.
Kenneth said the fund would not rush into other assets just to fulfill its new hybrid allocation strategy.
鈥淎 lot of these assets are long-term so we are prepared to wait,鈥� he said. 鈥淭here is no point us buying the assets now at a price we do not like, and one which will look silly in two years鈥� time.鈥�
