Now Pensions has committed £7.1bn of assets to private markets, including a first allocation to affordable and social housing. The defined contribution master trust is targeting a 10% allocation to private assets by 2030, with a specific focus on UK opportunities that provide tangible social benefits alongside financial returns.
Martyn James, director of investment at Now Pensions, explained that the scheme’s trustees consider three objectives when making decisions: risk, return, and real-world impact. The trustees felt that investing in affordable housing resonated with the membership, many of whom have lower or moderate incomes.
“The social purpose was also key,” James said. “Affordable housing has a tangible impact on people’s lives, and the trustees felt that would genuinely resonate with our membership.” The asset class offers a stable income stream and strong inflation linkage, which appeals to the growth portfolio that targets CPI plus 3.5% to 4%.
Building private markets portfolios involves balancing many different considerations, and affordable housing is one component within a much broader toolkit. It can be a valuable diversifier from other return streams in a portfolio.
Research and partnerships
Cardano, which manages the Now Pensions strategy and was acquired by Mercer in 2024, partnered with Better Society Capital (BSC) to run a request for proposal process. The collaboration aimed to put up to £195m to work through the strategy to tackle the UK’s housing crisis.
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BSC acted as a natural partner during the research phase. The organisation is a leading impact investor with a mission to help “create impact markets” by enabling other investors to participate. James noted that BSC facilitated introductions to several managers and helped handle the complexity of the sector.
Despite the partnership, Cardano carried out its own due diligence before selecting CBRE Investment Management. The assessment covered the management team’s strength, sourcing of opportunities, portfolio construction, and risk management. Particular emphasis was placed on reputational risk regarding landlord responsibilities.
Illiquidity is an inherent feature of private markets, and the trustees have undertaken analysis to ensure the scheme can comfortably accommodate it. The scheme is strongly cash flow positive with limited outflows, providing a solid foundation for less liquid investments. Scenario analysis included stress testing for market downturns.
Expanding the portfolio
The affordable housing allocation is not expected to be the highest-returning investment in the private markets portfolio, but it offers a mix of stable income and social impact. Now Pensions targets around 7% net of fees for affordable housing over the long term.
Looking ahead, the trustees have agreed to invest in a bespoke long-term asset fund (LTAF) alongside the Mercer Master Trust.
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