The Marks & Spencer (M&S) pension scheme is facing huge potential losses after pumping cash into a Home REIT sister fund that is now under investigation by the Financial Conduct Authority (FCA), City A.M. can reveal.
Home Long Income Fund (HLIF), a vehicle set up by investment manager Alvarium in 2018, provided the basis for the now scandal-hit former FTSE 250 firm Home REIT, which Alvarium floated on the London Stock Exchange in 2020.
HLIF attracted hundreds of millions of pounds from City investors, including fund managers handling M&S pension cash, on the promise of alleviating homelessness and providing a steady return to investors.
However, the management of the fund is now under investigation by the FCA after its value halved to around £200m between June 2022 and the end of 2023, according to previously unreported regulatory filings from its parent group Alti. Alvarium merged with Tiedemann at the start of last year to become Alti, which is listed on New York’s Nasdaq stock exchange.
The FCA announced an investigation into Home REIT in January but did not reveal that it was also probing the management of Alti’s other social housing fund HLIF.
“HLIF pursues a similar investment strategy to Home REIT and its financial performance has similarly declined significantly since the end of 2021,” Alti said in the filings to the US regulator, the Securities and Exchange Commission. “The historic management of these funds by certain legacy Alvarium entities is now the subject of investigations by the UK FCA.”
Alvarium set up Home REIT with a similar tenant base to HLIF, City A.M. understands. The fund pursued the same investment strategy of buying social housing and letting the properties to charity tenants, who would in turn provide accommodation to homeless and vulnerable people.
The FCA is investigating Home REIT sister fund, HLIF
Home REIT’s implosion has played out publicly as a string of charity tenants have gone bankrupt and its rental take has evaporated. In filings to the London Stock Exchange earlier this year, Home REIT revealed its portfolio had fallen by around 60 per cent in value.
However, the privately-owned HLIF has avoided public scrutiny due to the minimal reporting requirements placed on such funds. Alti has been forced to disclose the state of HLIF’s portfolio due to the FCA’s probe and the potential reputational and legal damage it could inflict on the firm.
Should the FCA “seek to impose financial penalties or other sanctions” over the management of Home REIT and HLIF, it may “adversely affect our business, financial condition or results of operations,” Alti warned.
An FCA spokesperson told City A.M. that it was “aware of the filings in the US” and “cannot comment on individual cases based on legally binding restrictions placed on us.”
The disclosures point to the headache still facing Alti over the Home REIT fiasco despite public attempts to distance itself. Alvarium spun off the arm responsible for managing Home REIT prior to listing on the Nasdaq, but it still owns Social Housing Income Advisors(SHIA), which manages HLIF.
Home REIT sacked the spun-off Alvarium unit as its investment manager last May.
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Since listing on the Nasdaq via a Spac deal at the start of last year, Alti itself has slumped by around 50 per cent from a value of more than $1bn.
A spokesperson for Alti said it “cannot comment in detail due to the ongoing investigation” but it is “fully cooperating with the FCA.”
“In terms of HLIF, Alti installed a new team to manage it, and the former fund management team left prior to the merger that created Alti,” the spokesperson added.
“Furthermore, the investigation relates to the historic management of HLIF by certain legacy Alvarium entities. We are in the process of transitioning the management of HLIF to a third-party manager, which was previously disclosed in our 10-K filing.”
The tumble in the value of HLIF’s portfolio is also likely to trigger hefty losses for investors that backed the fund, including the M&S scheme.
In its investor literature from 2020, M&S touted HLIF as an example of how its investments were having a “positive impact on the planet today”.
“Individuals housed through the scheme are given training and rehabilitation to provide the skills and confidence to find long-term accommodation and re-integrate into society,” M&S said of HLIF in its 2020 report.
It is unclear how much money the M&S pension scheme invested in the fund in total, but it backed the fund prior to the huge decline seen between 2022 and the end of 2023. Trustees of the pension scheme declined to respond to questions over whether this would impact scheme members or how much money they had lost through their investment in the fund. M&S declined to comment.
It is unclear which other investors have backed the fund.