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Octopus Investments announces £50mn first close of Fund

Octopus Investments has announced the first close of its Affordable Housing fund, set up to accelerate the UK’s delivery of good quality homes.
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The first close of £50mn was achieved with capital from London CIV, the investment pool for 32 of London’s Local Government Pension Schemes (LGPS). The initial capital will enable more than 500 affordable family and older persons homes to be built in areas across the UK and is the first step towards the Fund’s overall target of funding the delivery of 5,000 homes over the next few years.

The Fund provides co-investment opportunities for Local Authorities, LGPS’ and other locally interested investors, increasing the total capital available for affordable housing but also driving alignment around the delivery of schemes in their local areas.  The Fund will not invest in specialist supported housing.

Since the strategy was announced earlier this year, NewArch, Octopus’ embedded registered provider of social housing, has adopted the Sustainability Reporting Standard for Social Housing (SRS), which is a common ESG measurement and reporting framework for the affordable housing sector. Facilitated by leading impact advisory firm, The Good Economy, the SRS allows Octopus to be transparent and consistent with its partners and investors in terms of its ESG reporting, given that both social and environment impact are top priorities.

More recently, Octopus published a report looking into the funding challenges faced by the affordable housing sector: Closing the gap: Unlocking investment to address the UK’s affordable housing challenge. The report revealed that repairs and maintenance expenditure across the sector has increased by over £1.5bn in just four years, meaning that Housing Associations anticipate a 22% reduction in the number of new affordable homes built.

The report also brought to light the need for a more sustainable funding solution that can bridge an era of lower grant funding levels and more expensive debt.

Jack Burnham, Head of Affordable Housing, commented: “We are excited that this initial capital raise will enable us to start working with Housing Associations to deliver and manage new affordable homes across the country. In creating the Fund, we have listened carefully to the needs of the affordable housing sector.  We know that Housing Associations are increasingly comfortable using alternative finance routes to build and operate more homes, with half of CFOs in the sector now more likely to work with equity partners compared with just 12 months ago[1]. We think that there is potential for these partnerships to have a seismic impact on the delivery of affordable housing across the country.

“Having our own registered provider, New Arch, allows us to speak a common language with Housing Associations and holds us to the same regulatory standards, meaning we’re in a better position to understand what is important to them in developing fair and long-term partnerships. NewArch also allows us to operate a scalable, direct let model to ensure a fair sharing of risk with our partners – we’ll be heavily involved with them in ensuring the high quality of accommodation and management of the properties. This shows our sustainability goals go beyond asset-level ESG, as we’re focusing on the sustainability of our model itself.”

Ed Clough, Managing Director at Octopus Real Estate, added: “We’re delighted to be working with London CIV whose values align with ours in delivering quality sustainable housing for all stages of a person’s life. Strong social outcomes are critical to the Fund’s success: from the energy efficient homes we are looking to build, to our focus on true affordability of the Fund’s homes.

“This is an evergreen fund that we will continue to scale for years to come. This means we can support our Housing Associations partners in providing affordable homes for the long-term, creating stability for both residents and investors.”