A new government-backed shared ownership investment fund is promising to deliver £500m of sustainably-designed, affordable homes.

M&G Investments has launched the fund with £215m investment from the Cambridgeshire and Northamptonshire Local Government Pensions Scheme, Homes England, two of M&G’s clients and the Hyde Group housing association, which will deliver the new accommodation.

The collaboration will enable M&G to buy existing stock and fund much of Hyde’s development pipeline, which in turn allows Hyde to recycle capital into new homes and other affordable housing initiatives.

The first stage of the partnership has been marked by the Fund’s £61m acquisition of 422 homes from Hyde in London and Kent, which will remain in the regulated social housing sector and be managed by the housing association.

M&G’s Head of Residential Investment, Alex Greaves said: “We are determined to play our part in addressing the UK’s housing crisis by providing a mix of housing tenures through our residential capability. Well managed shared ownership is a brilliant first step onto the housing ladder for aspirational home owners and as trusted investors with access to deep pools of client capital, we are fully committed to innovating and improving standards – adding scale and efficiency to the Fund.

“Working with an organisation of Hyde’s calibre which shares our social and environmental values and aspirations, is a perfect blueprint for how the private and public sectors can combine forces to make a positive impact on this underserved sector. We look forward to growing our partnerships and funding high quality housing – and in time with other organisations.”

Explaining the benefits of investing in the sector from a pension fund perspective, Paul Tysoe, Investment Manager for both the Northamptonshire and Cambridgeshire Local Government Pension Funds, added: “For income seeking investors such as pension funds, Shared Ownership offers another means of diversification due to the sector’s low correlation with other asset classes and long-term inflation linked income with exposure to house price growth. Having invested in M&G’s UK Residential Property Fund since 2017, we have the comfort of its track record, expertise and ESG credentials and we welcome the positive social impact that this new fund represents.”

Peter Denton, chief executive officer of the Hyde Group, highlighted the funding challenge he and other housing associations face.

He said: “It is imperative that we find new sources of funding and partners that are committed to environmental, social and governance (ESG) outcomes, to ensure that we can continue to build the new homes that are so desperately needed while also investing in our existing properties.

“The shortage of affordable homes is still real, significant and urgent and we owe it to our future customers to continue to build new homes, despite competing demands on our money. In M&G we have chosen a partner who shares our values and social purpose.”