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UK pension funds invest in Aviva Investors debt fund

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Four UK defined benefit schemes have invested in the second close of Aviva Investors’ UK commercial real estate senior debt fund originally launched in July, bringing total investment in the fund to £287.5m (€340.3m).

Altogether, five investors took part in the second close that raised £187.5m, the asset management firm said, declining to name the individual investors.

The fund’s target for investment is £500m by its final close in January 2015.

James Tarry, manager of the fund, said: “The interest we have seen from institutional investors in the risk/return profile of senior secured debt validates our view that the opportunity in this space is highly compelling.”

The market segment is likely to remain attractive for the foreseeable future, he said.

The fund is aiming for a yield between 2.5 and 3.5 percentage points above UK government bonds of the same maturity.

It invests in fixed-rate first-ranking mortgages lent at up to 65% loan-to-value, with 5-10 year maturities.

The property loans are secured against core and core-plus UK commercial real estate, which is owned and managed by “proven high-quality borrowers”, the fund said.

Tarry said the fund expects to see more interest from pension funds.

“They like it as a fixed income diversifier,” he said. “The fund provides them with a spread over the Gilt, which looks attractive relative to the yield they could get from the equivalent rated corporate bond.”

As long-term investors, he said pension funds were also keen to harvest the illiquidity premium of real estate debt.

Tarry said the firm was still seeing a flow of attractive lending opportunities in the senior debt market.

Opportunities for non-bank real estate lending continues to grow, he said, as banks rein in their lending activities as a result of tougher regulation.

“It’s inevitable that real estate lending is going to become a smaller proportion of bank balance sheets,” he said.

The fund had already deployed more than £53m in two high-quality deals that met the fund’s investment criteria.

“Our pipeline of lending business across the UK remains strong,” he said.

 

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