With the rise of private markets as a major investment theme, there is an increasing demand from investors for investment strategies that are not only commercially competitive, but also sustainable and impactful. L&G's approach to investing in affordable housing and digital infrastructure has made the firm the winner of the Investment Innovation of the year and the Social Investing Initiative of the year awards. Alex Wharton, Managing Director of Partnerships and Insurance within the Asset Management division, explains how it all fits together.

By Pete Carvill, Insurance Asset Risk

Insurance Asset Risk (IAR): Congratulations on winning two awards this year with Insurance Asset Risk. What are your initial thoughts?

Alex Wharton (AW): We're absolutely delighted. At L&G, we have a long and deep history in insurance and participating in the insurance asset management space. We approach our investments by how they can have a real social impact and where we can deliver returns to investors while putting our balance sheet capital, and third party capital, to work for the greater good. Both of these awards, we think, highlight that.

IAR: What sets L&G apart, do you think?

AW: We've long been investors in UK housing stock and are actively identifying opportunities in growth sectors like digital infrastructure. We have a real edge over our peers because of the connectivity we have in our balance sheet and our use of internal capital which offers differentiated scale and interest alignment to clients.

We've also got connections in the public sector and with like-minded investment partners. Where we excel is in bringing these two things together, which is something that no one else is doing. With our affordable housing investment strategy for example, we've raised £510m as part of the second close of our Affordable

Housing Fund alongside investors such as London CIV, Better Society Capital, Greater Manchester Pension Fund, and ACCESS Pool; and with our data centre in Newham, we worked with Council and community alongside specialist digital infrastructure investment firm Goldacre, and data centre development partner sineQN.

These types of partnerships are at the heart of how we deliver precisely targeted investment and developments that meet local needs and priorities alongside returns for our clients and shareholders.

IAR: You've said that L&G has this commitment to social housing, but there is a fiduciary duty to bring returns for investors. That must make it a hard line to balance upon. How do you manage that?

AW: L&G established its Affordable Homes business, Legal & General; Affordable Homes, in 2018 with the aim of growing the UK's housing stock. Since that time, we've invested over £1bn to date and own 8,000 homes, 5,000 of which are now fully operational. It's not a secret that there is an undersupply of homes in the UK, and we calculate that £10bn of equity investment is needed each year. We want to use our capital to invest in these homes, get them up and running, and then attract further capital into this sector.

Building on this, we launched our Affordable Homes Fund last July. We've raised already £510m, which we're delighted with. It's not something that we can do solely by ourselves, but we can help others moving into this space. We like to think that it shows that you can deliver an investment return while still delivering positive outcomes for society.

IAR: For the nuts and bolts, how does it work? You're building these places and then renting them out? Where does the social responsibility come in?

AW: There's a bit more to it than that! We do buy the homes and rent them out, but we have external verification on the rental rates to make sure that there's fair value on the rents being charged. According to our external validators, those rents are 62% of the average in the area. We look on these properties as a long-term income stream. And what's central to that is making sure that the customer experience is super important. L&G Affordable Homes is a Registered Provider and is regulated by The Regulator of Social Housing with a rating of V1/G1 - reflecting the highest standards in governance and financial stability. It's vital that we look at both sides of the equation—both the tenant and the property owner.

IAR: The development that won the Investment Innovation of the Year award was your data centre project in Newham? Can you tell our IAR readers a little more about this?

AW: We've been investing and developing high-quality and multi-sectoral regeneration projects in Newham for a long time, and what we've been doing with this data centre is bringing together our knowledge in developing the Borough with our expertise in digital infrastructure. This £750m data centre investment will aim to deliver great returns in the AI age, meeting the growing demand for data storage and processing and providing the infrastructure to support the UK's technological advancement. We also believe that it's going to leave an indelible mark—in a positive sense—on the borough of Newham for years to come. Overall, we're expecting £88m gross value add and the creation of over 1,000 skilled jobs during construction and operation.

IAR: Data centres are notorious for their energy usage and the heat produced. How do those two things factor in?

AW: We've been working very closely with local authorities and partners to ensure the right energy infrastructure is in place to potentially allow the data centre to be a heat source for thousands of homes in Newham, and it will aim to help the Council fulfil its net-zero ambitions. The scheme will also provide significant environmental and public realm improvements, connecting walkways for the use of the local community. We have full planning permission now but when we were going through the initial phase with the council, it was done on a no-regrets basis so that it could serve the local community in the future.