Aberdeen to double size of Secondaries Real Estate fund within next year

Asset manager Aberdeen Asset Management plans to double the size of its European Secondaries Real Estate fund to €300 mln within the next year, Johan Temse, one of the fund’s managers, told PropertyEU.

Aberdeen launched the fund on 23 September and has already received €151.5 mln in initial commitments. Swedish national pension fund Förtsa AP-fonden (AP1) is the lead investor, although unnamed institutional investors have also invested in the fund, said Temse, who is based in Stockholm.

’Essentially, it’s a fund of funds investing across the whole of Europe. We will buy into existing funds that were typically launched between 2006 and 2009. We’ll take advantage of other investors that, for different reasons, need to divest units in such funds. We believe we can create value-added return by investing in property portfolios with core characteristics at discounts to NAV,’ Temse said.

Aberdeen now aims to double the amount raised to €300 mln before the fund’s final closing in a year’s time. ‘We hope to deploy half of the money raised so far by the year-end and we have a good pipeline of opportunities,’ Temse said, declining to provide further details.

He said the fund is especially interested in investing in the Nordic region, Germany, the UK and France. It also has a preference for investing in sector-specific funds focusing on one country or sector, Temse added. ‘There will be no gearing at the fund of funds level, although we will be buying into some funds that are already geared.’ The fund will run for five years.

According to Temse, Aberdeen has had some €700 mln of new inflows into its real estate funds so far this year . It had €236.6 bn of AUM as of end-August 2013, of which around €20 bn is invested in real estate.

Nonetheless, the fund of fund sector accounts for a small percentage of overall real estate funds in Europe, at less than 10%. According to Inrev, there are 56 fund of funds in Europe with a known NAV of €7.1 bn.

Aberdeen has eight fund of funds, while CBRE has five. Of the 56 fund of funds, 16 are opportunity, 19 are core and 21 are value-added, according to Inrev. Each one invests on average in around 12 vehicles, committing around €18 mln per vehicle. In terms of region, 12 funds have a mixed geographical remit, 14 invest in Asia, 24 in Europe and six in the US, according to Inrev.

Nonetheless, the fund of funds sector has shrunk since the onset of the financial crisis in 2007, according to Claus Thomas, international director in the client capital group at LaSalle Investment Management in Munich: ‘The sector appealed especially to investors who wanted broad exposure. However, the "double fee" structure - whereby investors have to pay a fee to the target fund and also to the fund of funds’ manager - has since made it less attractive. That structure worked when return expectations were higher, but is harder to justify now that returns are lower,’ he said.

However, the appeal of fund of funds for a specialist fund manager now is that they 'can offer a good opportunity to buy secondary units in a fund quite cheaply when those opportunities come up’, Thomas added.

Today, a growing trend in the fund space in Germany is big German investors - such as pension funds and insurance companies - wanting separate, dedicated accounts, according to Thomas. ‘For example, BVK, a large German pension fund, gave us a mandate earlier this year to build a global real estate portfolio for them - their own dedicated portfolio, like a fund for themselves. The initial size is €500 mln but that will likely grow over time. We expect to invest this initial allocation over the next two-to-three years,’ Thomas added. (BVK has also awarded UBS a mandate to put together a portfolio of funds on its behalf.)