The growing enthusiasm from pension funds towards ground rent investments has been questioned by Cardano.

Ground rent investments have been promoted by industry advisers, as they believe this investment area can achieve inflation-linked returns and have stated that ground rent charges should increase in line with the price of inflation.

However, despite acknowledging the fact that pension funds should embrace a wide variety of assets in their investment portfolios, Cardano’s client director Phil Page said that the drawbacks linked to this asset class outweigh the positives.

“We question whether the ground rent market is of sufficient size to justify interest from pension funds. The total capacity for institutional ground rent investment is only a few hundred million pounds a year, which is around 0.02 per cent of the assets of corporate UK pension funds collectively,” he said.

He added: “We fully support embracing a wide range of asset types and do a great deal of research in-house to find the very best that is out there. There is a very real danger, however, of trustees buying in to an attractive sounding concept, but not thinking through whether the idea is actually that attractive to implement.”

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