Hearthstone Investment Management holds first close

Hearthstone Investment Management has held a first close for its inaugural U.K. private rented sector (PRS) fund, raising more than £100 million ($134 million).

Hearthstone Residential Fund 1 (HRF1) has received commitments from a group of five local authority pension funds acting as cornerstone investors in a 10-year closed-end vehicle that will invest across the U.K. regions where there is, or is anticipated to be, strong rental demand.

“We see an opportunity to focus on regional centers of economic growth which are undersupplied with good quality rental accommodation,” said Cristoforo Rocco di Torrepadula, partner, Hearthstone Investment Management Limited. “This is also an opportunity to bring institutional-quality management to what has been to date a generally poor-quality consumer product. We are particularly delighted to be working with a group of local authority pension fund investors.”

The cornerstone investors include the Derbyshire Pension Fund, Nottinghamshire Local Government Pension Fund, Staffordshire Pension Fund, Teesside Pension Fund and West Midlands Pension Fund.

HRF1 will concentrate on building and actively managing portfolios with clusters of houses and low-rise apartment blocks in areas of good rental demand, which will appeal to families and young professionals. This contrasts with a number of other residential funds, which are focused on large blocks of flats in city centers. Acquisitions will include both bulk purchases of newly built stock from house builders and standing investment assets.

It is anticipated the fund will aim to deliver a projected annual yield net of all costs of 4 percent supplemented by capital growth. The final close is targeted at £200 million ($268 million) and is scheduled for November 2018.

“This is an opportunity for funds to make an investment that firstly meets our investment requirements, but also contributes in a small way to the housing need of the country,” said Philip Atkins, OBE, chair of the Staffordshire Pensions Panel and Leader of Staffordshire County Council. “The growing demand and undersupply of quality housing, in particular in the private rented sector, makes residential property more resilient to economic downturns and attractive to long-term investors. The Hearthstone Residential Fund 1 will provide a reliable income stream over the next decade while the underlying assets will act as a hedge against inflation.”