Agenda item

This paper refreshes the Committee with information on a niche alternative asset class in Leisure Development. A presentation will be provided by Darwin Alternatives (Darwin), a leading asset manager in this field, and with an established foothold in the Local Government Pension Scheme (LGPS) with a view to making an investment allocation. 

Matthew Hopson (Strategic Investment Manager), presented the report and gave a summary of the key points. It was noted that a presentation would be provided by Darwin Alternatives (Darwin), a leading asset manager in this field, and with an established foothold in the Local Government Pension Scheme with a view to making an investment allocation. 

Anthony Esse and James Penney (Darwin) gave a presentation and noted the following key points, relating to the Darwin Leisure Development Fund:

-        Invested in UK holiday parks, particularly consolidating fragmented smaller operators and improving the offering to generate greater returns.

-        Focused on income rather than capital growth as a driver of return.

-        Utilised modest gearing to help finance acquisitions and redevelopment.

-        Committed to ensuring that it focused on Environmental, Social and Governance (ESG) factors and working towards the portfolio achieving net zero emissions by 2050.

-        Provided a diversified investment opportunity with low downside risk but substantial upside potential.

-        There was strong focus on operating the portfolio in a sustainable and responsible manner.

-        The benefits of the Leisure Development Fund’s strategy were also outlined.

-        Darwin had developments in national parks across the Peak District and Lake District. A proposal for a signature site was also being considered at Blenheim Palace in the near future.

Councillor Jonathan Caleb-Landy enquired how Darwin protected the biodiversity of the local area where the developments took place. In response Anthony Esse (Darwin) explained that the Leisure Development Fund was working towards achieving net zero emissions by 2050 and had put in place a series of environmental aims and targets for the Darwin Escapes holiday parks to help achieve this goal. This included achieving a biodiversity net gain when undertaking any development work. The Fund was also actively working to reduce emissions, waste and energy use where applicable on all sites.

Councillor Jonathan Caleb-Landy asked what controls were put in place to ensure that the developments were progressing on schedule and building costs were limited as a result of the Covid-19 pandemic. In response Anthony Esse (Darwin) provided a summary of the measures that were put in place to avoid potential delays and additional costs for new developments, noting that the majority of their materials, including the food and beverage producers were locally sourced.

Michael Adam (Co-opted Member) asked for further clarification to be provided on the barriers to entry into the market for this particular asset class. In response James Penney (Darwin) explained that Darwin were the only large-scale asset manager who operated in this asset class and were the first movers bringing this strategy to mainstream investors. He outlined the key barriers to entry, noting that these were mainly around planning permission and land. However, all of Darwin’s portfolio locations were situated in areas of outstanding natural beauty. There were high barriers to entry for new assets due to competing demands for land use. In addition, this asset class provided a different approach to investment in comparison to its competitors due to long term stable cash flows with inflation-linked returns.

In response to a question asked by Councillor Guy Vincent, Darwin confirmed that the Leisure Development Fund had no issues regarding the deferral of redemptions as a result of the Covid-19 pandemic. The vast majority of the capital was locked in for a minimum of 10 years at the request of the investors. Since the parks had reopened, (as a result of Covid-19 restrictions) the Leisure Development Fund had made a strong recovery.

Kevin Humpherson (Deloitte), enquired what proportion of income did Darwin receive from each revenue stream. In response James Penney (Darwin) provided a breakdown of the proportion of income received for the Leisure Development Fund, noting that the majority of parks within this Fund were holiday rentals.

Councillor Rowan Ree asked a question in relation to the risks associated around applying for planning permission for the sites within Darwin Escapes. In response James Penney (Darwin) explained that all the greenfield sites would only be purchased with a planning deal already in place to eliminate any risks.

Councillor Rowan Ree asked how Darwin’s ESG targets work in line with the Council’s commitment to tackle climate change and cut CO2 emissions to net zero by 2030. In response Matt Hopson advised that  the Fund’s carbon footprint was continuously monitored and the strategy for managing this would be adapted as the investment strategy evolved. Where individual managers were unable to reach a net zero position their negative impacts would look to be offset elsewhere.

Phil Triggs (Director of Treasury and Pensions) asked a series of questions in relation to the Leisure Development Fund. In response James Penney (Darwin) provided further clarification on the minimum lock in period and the terms set out for voting within unit classes in the event of a private equity buy out.

In response to a question asked by Councillor Matt Thorley, James Penney (Darwin) provided clarification on the legal ownership for the development at Blenheim Palace. It was noted that a 50-year lease was obtained for this site. The planning arrangements and the controls for the land were also outlined.

The Chair enquired whether it was likely that people would still holiday in the UK next year as the Covid-19 restrictions eased. In response, Darwin explained that their main market was short breaks, and the occupancy rates across most of their sites were high all year around.

Members noted that the following information was required by the Committee before a decision could be reached:

-        Financial statements for the previous three years following the 30 September 2021 closedown.

-        Clarification on the occupancy rates on pre and post the Covid-19 pandemic.

-        Confirmation on fund fees and charges.

RESOLVED:

That the Pension Fund Committee agreed to defer the decision to approve a 2.5% allocation of Pension Fund assets to the Darwin Leisure Development Fund until the next meeting.