It is still a tough capital-raising market for real estate fund managers. But success can be had, especially where strategies are focused and innovative. Richard Lowe reports

AXA Real Estate Investment Managers demonstrated the popularity of segre-
gated accounts during the first half of 2011 by raising €800m in capital from institutional investors. "As we emerge from the economic crisis, we are seeing a continued and evolving change in the way investors, particularly large institutions, approach investment opportunities," said Kiran Patel, global head of business development, distribution, research and strategy at AXA Real Estate.

But it is worth noting that the firm's success in the fundraising market has not been limited to separate accounts. AXA Real Estate also raised a further amount - €460m in aggregate - for its existing European debt and development funds. The company also looked to expand its activities in real estate debt by launching a specialist vehicle focusing on financing opportunities in Japan. It raised ¥15bn (€130m) for its Japanese Commercial Real Estate Debt fund from a Japan-based AXA Group insurance company and is seeking to secure further commitments from third-party investors.

Pramerica Real Estate Investors has also raised fresh equity for its European real estate debt programme, bringing the total to €559m. Investors include pension funds and sovereign wealth funds from North America, continental Europe, the UK and the Middle East. "We are encouraged that clients view our debt strategy as an alternative to direct real estate equity investment," said Andrew Radkiewicz, managing director for the debt funds group at Pramerica.

Like AXA Real Estate, GE Capital Real Estate and Aberdeen Asset Management have turned their attention to the Japanese real estate market. However, unlike the former, they have identified attractive opportunities to make direct equity, rather than debt, investments. GE Capital and Aberdeen have launched a $400m (€282m) co-investment vehicle to invest in multi-family residential assets in Tokyo.

It is the first time that the multi-manager arm of Aberdeen has entered into a joint venture. It shows that multi-managers are becoming increasingly active in JVs and club deals, after similar moves by the likes of CBRE Investors and Composition Capital. "Until recently we've been investing in Asian property primarily through third-party funds," said Jon Lekander, global head of indirect investment management at Aberdeen. "This partnership illustrates Aberdeen's ability to leverage our relationship network in Asia-Pacific to tap unique opportunities like club deals and joint ventures."

Meanwhile, Aviva Investors' multi-manager outfit announced that it would be adding to its offerings by launching a global real estate fund of funds specifically designed for UK pension schemes. The vehicle will focus on the main mature markets in North America, Asia Pacific and Europe, but will exclude the UK market where domestic pension funds often already have a significant exposure.

The fund is structured in a way that will make it particularly attractive to local authority pension schemes in the UK, which are subject to specific regulations. "Local authorities are currently limited under the restrictions applied by local government pension schemes regulations which impact not only their private equity positions but also their unlisted property exposure, which tends to be held via limited partnerships structures," said John Gellatly, head of real estate multi-manager, Europe, at Aviva Investors. "This fund is structured as a Jersey Property Unit Trust and is therefore not constrained under these regulations."

Real estate fund managers have also begun devising solutions for defined contribution (DC) pension funds in the UK. DC schemes are destined to become the predominant structure in the UK as defined benefit (DB) schemes are gradually phased out. This means that investment managers have good reason to configure products that suit DC requirements. The difficulty with DC schemes is that they invariably require higher degrees of liquidity and daily pricing transparency compared with their DB counterparts, making it a real challenge for fund manager to devise vehicles that invest in real bricks-and-mortar assets.

A new offering for DC schemes is the Hybrid Property fund from Legal & General Property (LGP) and Legal & General Investment Management (LGIM). The vehicle will invest 70% of DC pension capital in the LGP Managed Property Fund, a balanced UK real estate vehicle, and the remaining 30% in LGIM's Global REITS Index Tracker Fund. This means DC savers will be able to gain exposure to direct property assets in the UK, but also enjoy the liquidity and diversification from global listed investments. "The fund has been designed to enable the growing market of DC pension schemes to gain access to property market returns, while providing them with enhanced diversification and liquidity," said Pete Gladwell, business development manager at LGP.

CBRE Investors is also targeting DC pensions with its own UK Property Fund. The daily priced fund will invest mainly in physical properties, but will also consider real estate securities and cash products for liquidity purposes. CBRE Investors said the fund represented the first time that DC pension savers could gain access to its UK real estate investment strategy. The firm worked closely with DC platform providers and pension investment consultants in setting up the fund, which has been structured as a property authorised investment fund (PAIF). This offers UK pension funds the same tax benefits as real estate investment trusts (REITs).

France has a vehicle that is similar in some respects to the PAIF. The organisme de placement collectif immobilier (OPCI) offers French institutional investors a locally regulated, tax-efficient structure for real estate investments. So far, the limited number of OPCI launched have invested in the domestic property market in France, but a new offering from Schroder Property and Viveris Real Estate Investment Management will invest across Europe.

Viveris is a specisist in the OPCI sector, which is why Schroders has sought to partner with the firm to launch a pan-European fund aimed at the French institutional market. It is a strategy that Schroders is looking to replicate elsewhere; it is seeking to set up vehicles that are structured in line with local regulatory regimes in Germany and Italy as well. The latest fund is designed to enable French institutions to invest in European real estate markets while they still have heavy weightings to their domestic market. "The combination of the OPCI and French expertise that Viveris REIM bring and the wider pan-European platform that Schroders has will be a great benefit to our clients," said Neil Turner, global head of fund management at Schroders.