Birmingham and Sandwell hopes to attract cash from pension funds to regenerate its patch
The Birmingham and Sandwell market renewal pathfinder plans to entice institutional investors to pour money into dilapidated housing in the Midlands and North.

The pathfinder has commissioned research into possible ways of doing this from consultant Nick Waloff Associates.

All nine pathfinders will need to supplement any public funds they receive in the upcoming Communities Plan with hundreds of millions in private investment.

A spokesman for the Birmingham and Sandwell pathfinder said it hoped to "try to leverage bigger money from pension funds". He added: "This could very well form the basis of our pathfinder."

The pathfinders, which include local authorities, housing associations and private developers, are set to receive up to £500m from the government. Individual pathfinders must negotiate with the Office of the Deputy Prime Minister over how much they get and when.

Commenting on the potential for institutional investment, a banking source said: "If there was to be a large amount of interest, any deals would have to be of a minimum size. If you are looking at a public deal that goes into a number of areas, you would need to see a requirement for about £100m to £150m. The question is what these deals would be secured on – any potential institutional investors would want reassurance on this."

A number of possible models could be used to attract investors such as pension funds, whose resources run to many hundreds of millions of pounds. Possibilities include:

  • pathfinders applying for credit ratings
    pathfinders using land or new housing as security
  • the government guaranteeing any loan – much as it did for rail operator Railtrack.

The last model is the most likely, given the political significance of the nine pathfinders.

It would also be the easiest. But it could be scuppered as, according to the banking source, the government is reluctant to bring this risk onto its balance sheet.

n It also emerged last week that the Audit Commission will scrutinise the performance of the nine pathfinders. It had initially been thought that a panel of "wise men" would be set up to oversee the process, but government sources say it made more sense for the commission to take on the role, given its wider responsibility for inspecting all social housing.