National Housing Federation Treasury Management Conference 8 Oct 2014 Peter Morris Director of Pensions Greater Manchester Pension Fund

Created 1974 with GMC as the Administering Authority Tameside became the Administering Authority in 1987 following abolition of GMC Largest Local Government Pension Scheme Fund in England and Wales Over 400 employers including 10 Greater Manchester Local Authorities Over 300,000 members with 100,000 employee, pensioner and deferred members Assets over £16 billion Successful fund with relatively high funding level (2013 valuation 90.5%) and relatively low employer contribution rates Driven by long term good investment track record Greater Manchester Pension Fund

GMPF Actuarial History Now Employees61,00075,00094,00088,000109,000 Deferred Members 19814,60034,70096,000111,000 Pensioners15,60042,20067,00092,000108,000 % of LA employees Employers Assets£77m£2bn£6.3bn£12.6bn£16.3bn Surplus / (deficit) Er cont rate n/a 10% £225m 6.3% £0.3bn 9.7% (£1.3bn) 16.4%

Greater Manchester Pension Fund Benchmark Asset Allocation Major Asset Class Split Property 10% Bonds/Cash 27% UK /Overseas Equity Split Overseas equities 65% UK Equities 35% Bonds/Cash Split O/S Corp 2% UK IL 10% UK Corp 20% UK Govt 15% Cash 23% Overseas Equity Split Europe 28% Japan 15% Pacific 10% Emerging 15% North America 32% Public Equity 58% Alt Inv 5% O/S Govt 10% O/S IL 5% Credit 15%

Greater Manchester Pension Fund Local Investment Long history of investing locally within Greater Manchester and the wider North West Twin aims Commercial returns Supporting the area Recently increased allocation to up to 5% of Fund value (approx £650m) Fund is a long term investor, and holds belief that there is a lack of long term capital available, Greater Manchester conurbation offers opportunities that we are able to take advantage of and thus able to deliver on twin aims Looking to build a diversified portfolio of assets over time

Greater Manchester Pension Fund Current Approvals Type of InvestmentAllocation Greater Manchester Property Venture FundUp to £300m Investment alongside EvergreenUp to £50m Residential PropertyUp to £100m Invest for GrowthUp to £50m Aggregate LimitUp to £650m

Greater Manchester Pension Fund Need for Rented Housing National Picture Owner occupation has been in decline since 2003, with a corresponding increase in the private rented sector, Household formation is fastest among groups who have difficulty becoming home owners Changing employment patterns make owner- occupation more difficult to access. Higher levels of personal debt restrict ability to gain mortgages

Greater Manchester Pension Fund Need for Rented Housing Greater Manchester Greater Manchester has seen a dramatic decrease in housing completions since the peak of the market in 2007/08. New supply is running at around 3,000 – 4,000 per annum rather than the roughly 9, ,000 per annum needed to meet demand. Census 2011 figures show the private rented sector has grown by almost 70,000 properties since 2001 in Greater Manchester, from 10.7% to 17.4% of the total stock.

Greater Manchester Pension Fund Case for Housing Investment 1) Is there a need for housing investment / Is there an investment opportunity? - Direct v Indirect 2) Will such investment deliver a viable return? 3) Is there a means by which the Fund can effectively and efficiently invest?

Greater Manchester Pension Fund Returns from Housing Investment for a Pension Fund Healthy returns on a risk adjusted basis Strong Income Generation Regular Cash Flows Strong Collateral Potential to structure investments to focus on risk control or return generation Equity or fixed income instruments Payment Profile Seniority in Capital Structure

Greater Manchester Pension Fund Building around 240 homes in Manchester City Council Area 1/2 for sale 1/2 at market rent Funding GMPF provides the capital (long term funding) to finance the development Manchester City Council and HCA provides the 5 sites Financial viability assessed across the 5 sites – facilitates development on sites Aim to work with other LAs and apply the model across Greater Manchester Housing : Matrix Homes

Greater Manchester Pension Fund Financial Model Joint venture with Council Investment is initially Fixed Income with a set interest rate and fixed repayment cash-flows For rented homes there is a long term lease to a head tenant who manages the properties Fund is not exposed to void and bad debt risks or other operational risks There is a potential sale at the end of the lease which provides final cash-flow and return on equity to Council and Pension Fund.

Greater Manchester Pension Fund Delivery Legal structure - Limited Partnership Key appointments Project Manager - MCC Builder – Wates Living Space Tenant – Places for People Sales Agent – Plumlife Key Risk Initial sales programme

Greater Manchester Pension Fund Building has Commenced

Greater Manchester Pension Fund Building has Commenced

Greater Manchester Pension Fund Summary Actively looking for investment opportunities in housing that deliver commercial returns We are building a diversified portfolio of local investments, housing is a key part of this We have a long term perspective and can be long term holders of assets / investments Focus on long term returns Focus for GMPF on Greater Manchester Area but model can be applied elsewhere….. Its been challenging and demanding!