Aviva UK senior debt fund to target low-risk investors

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  • Aviva UK senior debt fund to target low-risk investors

UK - Aviva Investors plans to launch a UK senior debt fund early next year targeting pension fund investors with a modest appetite for risk.

Neither a target size nor a precise debt has been decided for the fund, which will be a joint project with the insurer's loan-originating commercial finance operation.

Aviva Commercial Finance has issued commercial mortgages worth around £10bn (€12.3bn) over the past decade.

Ben Stirling, real estate managing director for Europe at Aviva Investors, said: "This is a good opportunity to take advantage of existing competences."

Stirling said the environment for liquidity and debt finance created a "compelling demand-led story", especially in the UK.

However, he did not rule out expansion into mainland European debt markets.

"Continental Europe is facing similar issues to the UK - the lack of available debt," he said. "It would be a logical extension."

Although the fund has long been in discussion, a difficult fundraising environment and the fact debt is a relatively new proposition for investors has slowed its progress.

"It's a question of getting investors comfortable with investing in these assets," Stirling said.

"Our advantage is that we're a big fixed income manager. These are low-risk investors, but they want steady income. They see this is primarily a fixed income product, rather than a real estate product.

"If you're talking about all loans with 60-65% LTV, you're into mezzanine territory and beyond. Potentially, there's a more attractive return, but there's also more risk. Senior debt stacks up well in terms of risk and return.

He added: "The further up the capital structure you go, the further removed you are from the real estate."

In separate news, Longbow Real Estate Capital is to launch a £500m UK debt fund.

The planned fund will be a significantly larger successor to Longbow UK Real Estate Debt Investments II.

Neither of the firm's managing partners was giving interviews this week.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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