The EG Interview: Gresham House homes in on shared ownership

As many company bosses know, much of the hard work in a merger or acquisition comes after the deal is done. Due diligence and negotiations have their challenges, of course, but the integration process, bringing the businesses together with as few hiccups as possible, is a task in and of itself. Try doing it during a nationwide lockdown. Asset management group Gresham House announced its £11m acquisition of fund manager TradeRisks in early March, boosting the group’s assets under management to £3bn. But within a fortnight the coronavirus pandemic meant staff at both companies were working from home. A 90-day integration plan is now being worked on virtually. Gresham House chief executive Tony Dalwood doesn’t expect the enlarged company to be working together in person next January. But even with individuals isolated, the Gresham House team is now working on big plans to build out the business in TradeRisks’ core areas of housing and social infrastructure.  Those plans include growth for Residential Secure Income, or ReSi, a listed investment firm managed by TradeRisks that had assets under management of £321m at the end of 2019, and the launch of a limited partnership targeting shared ownership housing investments. The team expects the latter to be built into a £1.5bn vehicle within three years. As Alex Pilato, who founded TradeRisks and is now Gresham House’s head of housing and capital markets, puts it: “The opportunity is enormous.” Top of the agenda Today’s Gresham House was formed in 2014 when Dalwood and colleagues took a listed investment company set to be liquidated and moved it to AIM with an eye to revamping its focus. Dalwood, who has more than two decades of experience in the investment industry, saw two developments he believed could open new business opportunities. One was the rise of alternative asset classes. “In the last 20 years, alternative asset allocation has gone from near to zero for the average pension fund to mid-20 percent,” he says. The other was the growing focus on environmental, social and governance factors when investors put money to work. “I was chairing the investment panel for the London Pension Fund – I started there as a non-exec in 2010 and I finished in 2018,” Dalwood says. “ESG had gone from a discussion topic at point 10 on the agenda to the top two.” Those factors have driven Gresham House’s investment thesis for areas such as forestry, renewables and housing, with the launch of sizeable funds such as the British Strategic Investment Fund, which counts among its investors six local government pension funds as well as the Greater London Authority’s London Strategic Reserve Fund. Dalwood now wants housing to play a greater part in the company’s offering. “What we recognised was that the opportunity in housing was even greater than perhaps we’d considered,” he says. “The demand for the social aspects, the increasing wealth inequalities going on, were perpetuating the [investment demand].” At the same time, Pilato was looking for “the right partner” to help take TradeRisks to the next level. Over two decades the former JPMorgan and HSBC director had built the business into a risk management adviser in the not-for-profit social housing sector and one of the sector’s leading non-bank debt, before listing ReSi in 2017. Room to grow Organic growth for ReSi is high on the to-do list for Dalwood, Pilato and the team. Earlier this month the company sealed a £300m, 45-year secured debt facility with the Universities Superannuation Scheme. Pilato described the deal as a “significant milestone” not only for ReSi but also the social housing sector – the funding line is the first standalone investment grade debt financing secured for the shared ownership sector. Gresham House has also been hiring to bolster the now 20-strong housing division, including the appointment of Andrew Stirling, the former director of social housing at Lloyds Banking Group, as TradeRisks’ head of treasury solutions within its corporate finance team.  ReSi and the new shared ownership partnership “could be sizeable and scale significantly”, Dalwood says. The latter vehicle, Gresham House Residential Secure Income, will be a registered provider of social housing, buying government grant-funded homes at a bulk discount as well as section 106 homes.  It’s a growing market, with other investors keenly eyeing the affordable housing space. Recent data show that shared ownership properties are now the most popular tenure for new starts in affordable housing funded by Homes England and the GLA – and are becoming a larger share of section 106 private funded affordable housing as well. Pilato, whose housing team will manage the shared ownership fund, expects to launch at £200m and to grow to between £1bn and £1.5bn over the next three years. “The scale of the opportunity is substantial,” he says. “The government needs about 150,000 affordable [homes a year] and we’re producing about 50,000 as a sector.” Between ReSi, the BSIF and the impending shared ownership fund, the Gresham House team believe they can become something of a “one-stop shop” for asset owners. “We can go to sellers of assets – meaning developers, housing associations, not-for-profit enterprises, private or public – and basically take various tenures from their developments,” says Pilato. “That is a huge advantage because it saves them having to look for and execute transactions with multiple counterparties.” And Dalwood foresees the Covid-19 crisis leading to an even greater focus on the ESG elements of investment than emerged as he opened the doors at Gresham House. “People look at their asset allocation and say, ‘I want exposure to asset class X – but it’s got to address ESG,” he says. With the TradeRisks team now on board, he hopes Gresham House will continue to help investors meet that goal. To send feedback, e-mail tim.burke@egi.co.uk or tweet @_tim_burke or @estatesgazette