Aviva Investors creates £37bn real assets platform

The company merges its property, infrastructure and debt capabilities, while selling its indirect real estate arm

Aviva Investors is the latest investment manager to combine its real estate, infrastructure and debt capabilities under a real assets umbrella – following the likes of AXA IM–Real Assets, LGIM Real Assets, BlackRock, and JP Morgan Asset Management.

Mark Versey, CIO of Aviva Investors Real Assets (AIRA), says the company has been using the term real assets “internally now for some time” and is now being more explicit. And he says this evolution reflects the thinking of its institutional investors.

“Our clients are increasingly thinking about all the private markets holistically together, looking for diversification and yield opportunities, that diversify away from the traditional markets of equities and bonds,” he says. “Real assets is how they’re beginning to think about that world. It’s how we’ve been beginning to think about our strategy at Aviva Investors over the last six months.”

The company has already been investing across real assets, running several funds for liability-matching UK pension funds. The Return Enhancing and Liability Matching (REaLM) series include funds focused on social housing, ground rents, infrastructure, commercial real estate and student accommodation. It invests in real assets through its multi-asset funds, and launched an Alternative Income Solutions (AIS) fund providing financing for real estate, infrastructure and companies.

“We’ve been calling the area of real estate and alternative-income real assets internally now for some time – to be aligned to that client need,” Versey says. “So this is following through on what our clients want. I guess the point is: what are we going to do with it? And this is really to build a wider range of solutions that cover a bigger range of asset classes.”

The AIS forms the largest part of the new AIRA business, but in terms of underlying asset classes, real estate is today the largest (see How Aviva Investors’ £37bn real assets business breaks down).

how aviva in ve sto rs 37bn re al asset s busine ss bre ak s down

But in addition to being formerly integrated into its real assets set up, Aviva Investors’ real estate business is undergoing another significant change, selling its multi-manager business to LaSalle Investment Management. The sale of its Real Estate Multi-Manager (REMM) subsidiary – along with REMM co-founder Ed Casal’s move to LaSalle – means Aviva Investors will become a purely direct real estate investment manager.

“We’ve made a business strategy decision [about] what is core to us in real estate,” says Versey. “And it’s actually doing the whole thing: the full value chain from product design, asset management, fund management and distribution.”

REMM was not deemed part of Aviva Investors’ core strategy, Versey says, and Aviva Investors did not “have the appetite” to apply the necessary scale to its indirect business. “So it makes a lot of sense for LaSalle to put our indirect business together with its own and get that scale,” he says.

The merger of both arms means LaSalle will become a $10bn (€8.5bn) real estate multi-manager. When the deal was announced, Jeff Jacobson, global CEO of LaSalle, said: “A strong multi-manager capacity has become increasingly important to LaSalle’s clients, and our global footprint and expertise provide a solid foundation to strengthen the incoming global indirect capabilities. This will enhance our capabilities to offer comprehensive integrated investment solutions across the risk spectrum in third-party fund investing, joint-ventures and co-investments.”

Aviva Investors has brought to an end the joint management with LaSalle of a pan-European core real estate fund. Aviva Investors and LaSalle have been co-managing the €1.7bn Encore+ fund for 11 years, and Aviva Investors has sold its rights and responsibilities. It will be managed solely by LaSalle, with David Ironside as fund manager.

While Encore+ was part of Aviva Investors’ direct real estate business, its divestment is in line with Versey’s comments about managing the full “value chain”.

“The Encore+ fund has been an amazing success story for Aviva Investors, but it’s actually giving us the confidence to just do it ourselves,” says Versey. Aviva Investors will enter “a phase of powering up now in Europe, particularly on the real estate side” to “reinvest in our core business and own the whole value chain”.

And is a new pan-European core fund on the cards? “We’re definitely looking at new products to launch,” Versey says. “We won’t be doing a fund that is a complete replica of Encore+, but we will have our own products out there as soon as we can. And obviously they’re going to be direct, they’re going to be pan-European, have our particular stamp on them with investment philosophy. So watch this space.”

There is also an opportunity to bring real estate more into multi-asset offerings – and to offer real estate funds to investors as part of wider conversations about income-producing investments.

“For the last four years we’ve been very successful in multi-asset products, whether it be via funds or by segregated mandates,” Versey says. “So adding real estate into those types of offerings is a natural extension of what we’re already doing to meet client demand. I think it will allow a lot more collaboration and therefore cross-selling opportunities with clients in real estate and in infrastructure and so on.”

He points to Aviva Investors’s Lime Property Fund, which is one of a number of large long-lease property funds in the UK today that pension funds typically use to match their sterling-denominated liabilities. “We have a lot of long-income strategies in the debt side, so cross-selling and actually talking to the same clients from one page is pretty critical,” Versey says. “We’ve had a lot discussions and they’re really looking for innovation in this area – how to actually combine some of these real assets together, whether it’s debt equity or whether it’s different types of real assets.”

Another benefit of having a holistic real assets platform is that the investment manager can look at relative value across asset classes and be sensitive to pricing in different markets. This is a particularly relevant point today when competition in real estate and infrastructure markets is compressing yields to historic lows.

“In some ways that’s what makes it so attractive to blend them together,” Versey says. “We can choose which ones are the right things to buy now and whether it should be debt or equity.”

It can also help speed of deployment at a time when institutional investors are keen to put capital to work, helping to avoid investment queues for more asset-specific strategies. “Having a broad focus actually allows us to speed up and get clients invested,” Versey says.

“So whether it’s yield or whether it’s growth or whether it’s beating inflation or meeting liabilities, a blend of real assets is a better way of achieving all of those things, particularly in the current market conditions. We are quite high in the property cycle now… we can actually have products that can switch to debt or mezzanine as well.”

The focus on direct investing should help Aviva Investors provide opportunities for investors wanting to partner up with its in-house capital on joint ventures and co-investments.

“One of the really interesting areas of future focus is looking at development opportunities in real estate where we can provide long-term debt and joint-venture equity opportunities for partners to co-invest alongside Aviva,” Versey says. “That’s something that we’ve done quite well with debt only [so far]. And so we want to use the demand from Aviva – and that’s Aviva in Europe as well as the UK – to actually grow the business.”

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