UK - Aviva Investors has launched four open-ended real estate funds aimed at underfunded UK pension schemes scouting alternatives to fixed income.

The specialist funds focus on social housing, ground rent, student assets and commercial assets.

Two further funds to be launched later this year will complete a series designed to match long-term liabilities with higher returns than those currently offered by bonds.

David Skinner, investment strategy and research director, said: "The investors I've spoken to aren't planning to reduce their real estate exposure to invest in these instruments. These are alternatives to fixed income, with a more attractive risk/return trade-off."

Fund managers will seek out assets with lease terms of more than 25 years, or up to 45 years in the case of the social housing fund.

"That's the kind of income stream demanded by pension funds," Skinner said. "The question is where it's available."

He added that the social housing fund would meet "enormous latent demand" for housing providers struggling with reluctant bank lenders, but too small to access bond markets.

"It's not development finance, and the ownership will revert back to the tenants," he said. "There is no sense that housing providers are selling the family silver. We're custodians of the asset. The providers may use the proceeds to build new housing schemes, but the pension fund is not exposed to the development risk."

However, pension fund investors will need to factor in credit and liquidity risk, and a higher level of collateralisation - though not as high as that for AAA-rated government bonds.

"There is a premium for taking those risks," said Skinner. 

The social housing fund will target long-term returns of index-linked gilts plus 150 basis points, minus fees. The other three funds will target the same plus 200bps.

Aviva's staff pension scheme will commit an undisclosed but "significant" amount to the four funds. Otherwise, appetite to date has come from large defined benefit schemes.

No details were available on the two funds scheduled to launch by the end of the year, but Skinner acknowledged that the universe of potential investments with long leases and long-term income streams was "extremely limited".