Inside Mount Street and HSBC’s £50bn servicing agreement with Aviva

A major servicing mandate, two years in the making, was announced this week, which will see London-based loan servicing firm Mount Street take responsibility for managing the real assets loan book of UK manager Aviva Investors.

Through the 10-year agreement, Mount Street has partnered with UK bank HSBC to service £50 billion (€59 billion) of assets held by Aviva Investors’ real assets business. HSBC will take on the fund administration role for the business, while Mount Street will service the manager’s real assets loan portfolio, which is understood to be in the order of £30 billion.

In the Real Estate Capital Europe Top 50 Lenders 2021 list, the European real estate component of Aviva Investors’ loan book at the end of Q3 2021 was reported to be €10.5 billion.

According to Paul Lloyd, managing partner and chief executive officer of Mount Street, the deal is unprecedented in the European real estate loan servicing space.

“The size of this mandate, and the involvement in it, has never been heard of. This is a unique transaction, and we hope to replicate it,” he said.

“We will manage the loans, do the processing, the payments, be the contact for the borrowers, carry out surveillance work, as well as oversight and asset management work over the 10-year period,” Lloyd explained.

Lloyd said the administrative burden on asset managers has significantly increased, driven by growing investor appetite for more frequent and detailed access to underlying data. He argued that Mount Street’s in-house technology makes functions including information management and loan servicing more efficient.

“We’ve been trying for many years to get lenders and asset managers to realise that outsourcing is a value-for-money, cost-efficient thing to do,” he added.

According to Melanie Collett, managing director, asset management, at Aviva Investors’ real assets business, the deal supports the company’s growth ambitions. “By investing in our technology, data and operating model, embedding our key operational requirements with expert service, we can ensure our investment expertise focuses on value-add and performance.”

Lloyd argued external servicers can provide a rounded view of the debt markets when managing a loan portfolio. “In the captive [servicing] market you only see your own employers’ book. Being outsourced, you get a different skillset. It gives a lender a different viewpoint. It allows for a portfolio to be assessed in a completely different way.”

However, Lloyd explained that a key component of the Aviva mandate is the fact Mount Street has taken on Aviva’s real assets servicing team, comprising around 25 people from Aviva’s Norwich offices, plus London-based staff. “You don’t want to lose the transaction history, skillset, or knowledge that has been built into these infrastructures already,” he stated.

Lloyd said preparation for taking on a mandate of this magnitude took Mount Street around two years. “We have had around 18 people working on this as their day job for the last 14 months, and without their commitment it couldn’t have happened. We have had to create procedures, hire people and develop systems further to have the operability Aviva needs.”

For Mount Street, the mandate also represents a significant boost to the volume of credit it manages, bringing the volume of its assets under management globally in commercial real estate to around £75 billion.