Aegon AM launches fund targeting smaller properties

UK - Aegon Asset Management is the latest fund management group to launch a fund targeting smaller real estate assets in the UK, as the market for prime property becomes increasingly competitive.

IPE Real Estate reported in February the launch of two new real estate funds, managed by First Property and Clavis Walden, which were targeting commercial property lot sizes worth less than £10m (€11m).

Pension funds traditionally prefer to invest in lot sizes above £10m, but fund managers are increasingly looking at assets between £10m and £3m as competitive bidding hots both above and below this range.

Likewise, The Aegon Active Value Property Fund, managed by David Wise and Helen Batten, will aim to build a balanced portfolio of UK real estate within this target range.

“We believe there is a gap in the market for our fund to gain a competitive edge by buying properties in the £3-10m size range, that are too big for private buyers but too small for most institutional investors,” said David Wise, lead manager for the fund.

“As a team, we have a very strong track record in finding and buying properties that are basically good-quality although in potential need of refurbishment or repositioning in the market, and Helen and I will focus on finding these properties to maximise the potential return of the fund.”

AEGON said the fund was suitable for defined benefit and defined contribution pension schemes.

The firm believes income will be a major factor for property returns over the medium-term and said by combining income with its property team’s stock-picking and asset management skills, it will be able to produce attractive returns for long-term investors.

The fund will carry no gearing, except in the short-term for bridging sales or purchases, and will not have any indirect holdings.
Officials project the fund will generate an initial yield of 7%, although all income derived from investments will be reinvested.

The fund will aim to outperform the IPD/ AREF All-Balanced Funds Index, which includes many higher risk funds that utilise gearing and indirect property, by 0.5% on a rolling three-year basis.

It will have a broad sector allocation, investing in the main commercial property areas of offices, industrial and retail, including high street and warehouse units. But it may also consider leisure, healthcare, residential and student accommodation.