UK - Aviva Investors has raised £200m (€226m) from a number of UK local authority and corporate pension schemes for a new fund designed to capitalise on the market recovery in the UK but without using gearing.

The Aviva Investors UK Real Estate Recovery Fund has attracted 18 investors, predominantly UK pension funds, and will seek to generate returns of 8-10% on their capital without any use of leverage.

IPE Real Estate had previously reported on a declining appetite among pension funds for high levels of gearing in new property funds, but Aviva Investors has decided to eschew entirely the use of gearing at both the fund level and individual asset level.

Phil Ellis, head of business development for real estate at Aviva Investors, said it did not feel appropriate to employ gearing following significant leverage-fuelled investment losses in the real estate markets since the start of the downturn.

And Ellis said gearing was not needed to achieve the fund's return objectives.

"We see good levels of return coming from the property market without the need for gearing, so why bother taking on that additional risk element," he said.

The closed-ended fund is seeking to invest in UK commercial real estate across a range of high-performing sectors over a five-year period.

It has already purchased three properties in separate transactions since its launch in November 2009, with a further two due to exchange imminently.

The first three are a hotel with supermarket, a provincial office and a retail warehouse.

The potential acquisitions are another retail warehouse and a Greater London high street retail property, which would make capital invested so far approximately £50m.

"The fund's strategy is to acquire lower-risk assets that are let to strong covenants on long leases in sectors and sub-sectors that we forecast to be top performers," said Rob Walton, head of UK institutional real estate funds at Aviva Investors.

"These acquisitions meet those criteria, with leases ranging from 10 to 25 years, the majority having minimum or fixed uplifts on reviews."

Ellis said incoming investors were either looking to "top up" their existing UK real estate portfolio or were making their first allocation to the asset class.

"For both, we have been very clear that this is a balanced exposure to the UK market in all sectors with a reasonable geographic coverage as well," he said.

The fund has identified the London City sector for potential investments going into 2010, as well as high quality retail warehouses with open planning consent.

Ellis said the fund would also be looking at alternative sectors, including healthcare, student accommodation, hotels and supermarkets.

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