Limited Price Inflation strategy appeals to long-term pension investors

While long-term rental growth tends to closely match inflation (see graph), rents are more cyclical. Index-linked rents smooth this deviation. “Limited price inflation is a concept that protects against deflation and modest levels of inflation,” said Legal & General Property MD Bill Hughes.

With an income stream designed to rise in line with the Retail Price Index between 0% and 5%, LPI won’t shield investors from 5%-plus inflation, “but that level is not expected”, said Hughes. In any case, pension funds’ liabilities are also usually capped at a similar level.

reflects what tenants will agree to pay when signing fixed uplift leases, according to Hughes. He added that the fund was not for “short-term, tactical investors” as they will be locked in for two years, followed by a nine-month wait to redeem. Hughes said this would suit investors that only wanted a limited amount of liquidity to “tailor their real estate exposure at the margins”.