Aviva Investors has raised an initial £1 bn (€1.1 bn) for a multi-asset debt investing product which will include European real estate lending, Jane Roberts, editor of PropertyEU's FinanceWatch reports.
Two third-party investors, a UK corporate pension fund and a North American insurance/financial services group, have signed segregated mandates for the new senior debt strategy, which will see the capital invested in four types of private debt: real estate; infrastructure; mid-market corporate debt; and structured finance.
Real estate will account for about 25% of the investments made, although there is no hard allocation.
Aviva has also launched an open-ended fund for the same strategy, called the Aviva Investors Alternative Income Solutions Fund. The whole programme is headed by managing director Barry Fowler, who last year was promoted from head of real estate finance to head the broader ‘alternative income solutions’ strategy.
The combined initial capital of the mandates and fund for the AIS platform is over £1bn.
Denominated in sterling, but able to invest in euro and dollar-denominated assets as well, the programme has made two, small initial investments: a structured finance loan and a participation in a portfolio of US bank loans. The funds and the segregated mandates can invest in the same deals. The gross target return is 3 months Libor plus 200 basis points.
Real estate loans will be floating rate, and typically of five to seven year maturities, 'complementing likely long-term, income-generating holdings such as infrastructure and structured finance’, said Aviva Investors’ head of real estate finance, Gregor Bamert.
The overall risk profile targeted is in line with BBB-rated investment grade credit. 'Real estate loans we think are mostly going to be equivalent to single A-grade credit quality,' Bamert said, originated in ticket sizes of £25 mln-£40 mln, or higher, and as bilateral loans or in clubs.
Growing interest in private debt including real restate
Aviva Investors’ new programme is a response to a growing interest in private debt, including real estate, on the part of fixed-income investors looking for higher yields and longer-dated income than they can get in more liquid investments in the continuing low interest environment.
Commenting on the programme, the unit's managing director Barry Fowler said: 'In a low interest rate environment institutional investors want high-quality cash flows to meet future liabilities with better returns than are available in publicly-traded markets, including government bonds. Alternative income assets have such characteristics.
'The fund takes a multi-asset approach to provide access to a greater array of illiquid opportunities and to increase diversification benefits.'
The new fund is also the latest expansion of the property lending business. Originally known as a UK, fixed-rate annuity lender, Aviva Investors Real Estate Finance has branched out to provide a wider range of senior loan types. Last year the business began lending in continental Europe delivering floating rate loans, hiring Romain Linot from AXA Investment Managers - Real Assets.
Seeded with equity from Aviva’s French insurance business, Aviva European Real Estate Debt has so far made €208 mln of loans across seven deals, two in the Netherlands and the rest in France.
