A spate of investment trust launches in the UK focused on social issues and public housing is raising questions about the ethics of private investors profiting from taxpayer-supported programmes.
Home Real Estate Investment Trust (Reit) will invest in housing for the homeless, an urgent social need in the UK that the pandemic is expected to exacerbate. Backed by private investors, the majority of the rent the trust receives for its transitional accommodation is paid ultimately by taxpayers via local council funding.
“It’s a moral grey area,” said Meg Hillier, a Labour MP and chair of the public accounts committee. “We are putting billions into housing benefits . . . It’s short-term thinking to pay out [a] 6 per cent return on something to investors that could, in the long term, be provided by the council and that profit could be recycled.”
Home Reit, managed by Alvarium Investments, plans to pay a 5.5 per cent minimum annual dividend, which will grow in line with inflation, and provide a net shareholder return of at least 7.5 per cent per year. Large shareholders in the trust include UK asset managers Rathbones, Charles Stanley, M&G and Liontrust.
In its prospectus, Home Reit estimates that there are more than 320,000 homeless people in Britain. “The unfortunate reality is that homelessness will be present for the foreseeable future,” said Jamie Beale, partner and co-manager of Home Reit.
Property funds have been hit hard during the pandemic, largely due to delayed rents and floundering high street retail. But Mr Beale said: “While other funds are under intense pressure at the moment, our rental income is robust because it comes from central government.”
Legislation passed in 2018 required councils to provide accommodation for the homeless, guaranteeing a demand for transitional accommodation and revenue for those who provide it.
Analysts said ESG (environment, social and governance) funds were in some ways reliant on social ills to provide an investment case. “It’s an important question for all these social impact funds. You appear to be doing the right thing, but there’s an investment return here. A quid pro quo,” said Simon Elliott, an analyst at Winterflood Investment Trusts.
The pandemic has intensified interest in the ESG sector and sharpened public appetite to invest in the market. Home Reit was the most successful trust raising of 2020, achieving £241m of its £250m target by October.
Fund managers have been quick to cash in on investors’ desire to put money to good use while generating profits. More than £1bn in net inflows moved into “responsible investment” funds in October alone, according the UK’s Investment Association. The sector now represents 3 per cent of the total UK fund market.
Addressing the charge that taxpayer money was being used to guarantee income to private investors, the new trusts said their vehicles provided necessary benefits to councils at lower rates than other private providers, such as bed and breakfasts and hotels. These forms of accommodation can make it difficult for the homeless to get back to independent living, the trusts added, and do not always provide necessary social support and counselling.
“It may be the lesser of two evils,” said John Ahern, a partner at law firm Covington, who specialises in financial markets and regulation. More high-quality homeless accommodation is good, even if investors are benefiting from a social issue, he said. “As a private sector asset manager you’re not doing this for the goodness of your health. There needs to be return or you can’t encourage investors to invest.”
Home Reit said it adheres to strict social impact principles and provides support to residents. “As long as we are the best product on the market, we are happy to have this debate . . . government isn’t doing it, we are,” said Mr Beale.
Schroders recently launched its BSC Social Impact Trust, managed by Big Society Capital, aimed at helping local communities. Client demand for impact investments led wealth manager Cazenove Capital to take a stake of more than 17 per cent, the maximum holding its rules permit.
Resonance, a social impact investment company, currently has three housing-focused investment funds, which include social housing for homeless. In the coming weeks it plans to launch a geared fund focused on housing for victims of domestic abuse, an issue highlighted by the pandemic.
Critics point to the emergence of such investment trusts as evidence of growing gaps in the social safety net. Pat McFadden, shadow economic secretary to the Treasury, said social housing provided by the private sector was needed, “[but] instead of creating a new market for investment funds . . . the government must tackle the root causes of homelessness and provide more social housing for families in need”.