Pension funds will be able to generate “attractive long-dated, inflation-linked” returns by entering the nascent “social” housing investment market, according to Redington, a consultancy.

M&G Investments is planning to roll out an innovative social housing debt fund by the end of the year, aimed at pension funds and insurance companies seeking long-term income.

The planned launch comes when UK housing associations are facing a shortage of funding as the banking sector continues to retrench. Robert Gardner, founder and chief executive of Redington, argued this was a potential boon for pension funds.

“This is a win-win for pension funds that have capital and want to invest and housing associations that need to use capital today. It can deliver good returns while also reducing some of the inflation risk in pension scheme liabilities,” he said.

The M&G fund will make loans to housing associations to be repaid over a 20-40 year period. It will target retail price inflation plus 2 per cent.

Other investment houses are also mulling the possibility of rolling out similar funds, said Mr Gardner.

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