By Josh Adcock for Insurance Asset Risk
UK insurers’ have “picked up the slack” from pension funds’ reduced demand for commercial ground rent assets in the last 18 months, as DB pension schemes’ funding has improved due to the higher rates environment, according to specialist investment manager AlphaReal.
The comments were made after proposed government regulatory changes that would potentially restrict residential freeholders’ ability to set higher ground rents for leaseholders.
AlphaReal added that it expected insurers to continue to dominate the £5bn-£6bn institutional market for commercial ground rents, estimating insurers represent 85% of that total. It added the total market size was £30bn-£35bn, which, in addition to institutional investors, included noninstitutional bodies such as the Crown, City of London, Canary Wharf Group and Local Authorities, it explained.
It added that a number of insurers had been ready to take to the market two years ago, but the sector had accelerated its participation in the last 12 months as pensions schemes found themselves with high allocations to illiquid assets.
Boris Mikhailov, head of client solutions at AlphaReal, commented: “These assets not only allow [insurers] to improve their current portfolios, but also helps them competitively price deals in the booming pensions risk transfer market – where well-funded schemes are looking to transfer liabilities to insurers.”
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