Linking fees to impact is ‘key differentiator’ for Orchard Street RE fund

Brunel Pension Partnership, one of the UK’s Local Government Pension Scheme pools, is acting as the cornerstone investor for Orchard Street’s inaugural impact real estate fund.

Orchard Street, the UK-focused commercial property investment manager, has announced the launch and first close of its £400 million ($462 million; €465 million) impact fund, Orchard Street Social and Environmental Impact Partnership (SEIP).

Just under £90 million has been committed at first close, with Brunel investing on behalf of eight of its 10 underlying local authority partner funds. This capital also includes co-investment by Orchard Street’s partners and members of Orchard Street’s senior team.

The fund represents a “new phase” in Orchard Street’s commitment to social investment, the firm said in a statement.

SEIP will focus on UK real estate investment opportunities with the potential to generate a measurable social and environmental impact and track impact metrics across three areas: decarbonisation, community investment and wellness.

Orchard Street is linking 30 percent of its performance fees to the achievement of the fund’s specific impact objectives, the firm said.

This aligns with Brunel’s policy of wanting to “back managers that are pushing the boundaries of responsible investing”, the firm said in a statement earlier this year, following the launch of a £2.1 billion credit investment programme dedicated to managers with proven climate strategies.

As the cornerstone backer of Orchard Street’s impact fund, Brunel has extended this way of thinking to social impact strategies.

“Brunel are delighted to be seeding this enlightened fund launch, whereby manager performance returns are linked to specific responsible investment objectives… we believe investors are well-placed to realise their financial and social targets as a result of Orchard Street’s SEIP strategy,” Vanessa Jacka, portfolio manager, Brunel Pension Partnership, said.

Linking carried interest to impact target was a “key differentiator” in the Orchard Street offering compared with other funds on the market, Philip Gadsden, portfolio director of SEIP and managing partner at Orchard Street Investment Management, told New Private Markets.

“BlueMark our impact auditor, reported that out of assets totaling $90 billion, only 3 percent of its impact clients had linked their targets to their performance fee – and that they believe other funds will soon start to adopt this approach,” Gadsden said. 

There is a growing appetite among investors for impact real estate funds targeting social strategies in recent years. A reported 54 social impact real estate funds have been brought to market in the UK since 2013, with 11 having a 2022 launch date, according to a report by bfinance earlier this year.