Retirement specialist LV= has mandated AgFe to invest up to £1bn into investment grade mortgages over the next four years in the friendly society’s first move into direct investing in senior property debt.
AgFe will originate fixed-rate, 5-20 year, bilateral loans ranging from £10m up to £100m.
At the same time, AgFe is about to hold a first close on c.£400m with three UK institutional investors for a second fund which will make shorter, three to five year, floating rate loans. This floating rate fund has other investors in due diligence and AgFe hopes to raise a total of £1bn giving it £2bn altogether to invest across all types of senior debt.
LV= is thought to have issued a full request for a proposal for its mandate last autumn. The business already invests in equity release and corporate bonds to fund its suite of retirement income options, specifically guaranteed income products.
The fixed rate fund will be targeting average returns of 200 basis points over gilts and the floating rate fund will look for similar returns over Libor.
The launches are the culmination of two years’ of fund-raising and put AgFe on the map as the first independent firm to raise so much capital for debt funds: others are part of large institutional asset management businesses like AXA, M&G Investment and Pramerica.
AgFe has begun reviewing opportunities for both funds and Natalie Howard said they had a “good pipeline. The £10m-£30m loan category is where we are seeing a lot of deals and there doesn’t seem to be many banks lending there. The assets tend to be well-located properties with long leases let to investment grade tenants, often in regional cities and locations. They suit longer-term lending, as those properties tend to be in the hands of owners who are not generally sellers of assets.”
Despite recent comment in the market about most UK borrowers preferring short-term, floating rate debt, Howard said there were plenty of borrowers attracted by the opportunity to lock into historically low-interest rates longer-term.
She said AgFe was also prepared to be flexible about redemption penalties on fixed-rate loans, although: “we’re finding that borrowers are not concerned about Spens prepayments, because they are more focused on the loan pricing.
“Our floating rate, shorter-term fund is more appropriate for opportunistic investors buying value-add assets and looking to sell within three to five years”.
AgFe was set up by former Morgan Stanley banker Paul Rolles where he worked alongside many of the firm’s partners including Howard, who heads their eight-strong real estate team. The firm also specialises in debt for infrastructure, social housing, renewables and trade receivables and employs 45 people.
Earlier today, at his annual Financing property presentation, Savills’ director William Newsom said there were now 200 outfits looking to lend on UK property but that there were only enough opportunities to satisfy about half their appetite to lend. Howard said she believed LV= picked AgFe for their origination capability. “The LV= mandate has a four-year investment period which is more than adequate” she said.
Richard Rowney, managing director of LV= Life and Pensions, said he had been “impressed” with AgFe’s capabilities for both fixed rate and floating rate deals and liked their “client-oriented approach”.