RUSSIA - Pension funds - at least Nordic ones - are ready to invest in Russian real estate, having overcome earlier reluctance concerning the complexity of the market, according to Ole Dall-Hansen, chief executive of Aberdeen Property Investors Eastern Europe.

 "Two years back it was all uphill," he told IPE Real Estate. "Now, the average investor is ready to make a move."

His comments come on the back of Aberdeen's launch of its first Russian property fund - its fourth focused on Eastern Europe. Aberdeen will tap institutional investors for €500m in capital for the Russian fund, described as "value-added to opportunistic", and with a target return of 14%.

"It's a stable market," said Dall-Hansen. "There's no hostile attitude towards real estate investors."

That said, the fund manager controlling the fund has chosen to do so from outside the target market and register the fund in a Luxembourg-registered SICAV, to reduce tax leakage and reassure investors with a known structure. "They wouldn't invest via a local vehicle," he said.

Dall-Hansen said the fund will invest in office, retail, warehousing and logistics in major cities across Russia because it would generate returns and allow control - but the fund will steer clear of residential.

"We won't do anything within residential. You need to know the local rules and regulations. Russia isn't like other markets," he said.

Aberdeen has had a seven-strong local team - five of whom are Russian - in place since July. The team, including Ole Dall-Hansen, was poached almost wholesale from the Baltic Property Trust.

"Commercial real estate is a fairly young market in Russia," said Dall-Hansen. "It's especially hard to find people who know how to operate to a Western standard but also understand the local market."

He said the Russian fund is likely to be the first of many and it is expected first investors to this fund are likely to be Nordic-based, although there is also interest from the Far East, Asia and the US.

Finnish pension funds have already gained exposure to Russian real estate via indirect investment in domestic property companies such as Sponda, which aims to have €200m - around 10% of its total investments - in Russia by 2009.

Among Sponda's major shareholders are the €11.4bn Finnish state pension fund (VER), with 0.63%, and the €690.8m Seaman's pension fund, with 0.08%.

However, investor relations manager Pia Arrhenius pointed out the firm's major holdings were still in Finland.

"One of the problems is the time it takes to process a transaction," she said. "In Russia, things take longer. Even with the normal due diligence, it takes time to get all the permits and the applications."

Although Finnish investors have proved more amenable to investing in Russian real estate, Arrhenius pointed out 60% of the firm's investors are from outside the country.