Secondary fund closing will be a first for Aviva Investors

Aviva Investors is planning the first closing for the $500m Aviva Investor Real Estate Capital Partners in the next few weeks.

The vehicle is the first fund of funds product to be developed by Aviva Investors Global Services, the international arm of the real estate multimanager division run by London-based Nick Mansley. It is also one of only a handful of funds globally to specialise in investing in secondary fund raisings by fund managers and general partners, as well as buying secondary stakes in funds from limited partners and unit holders.

The AIREC partnership will be structured as a Delaware vehicle, domiciled in the US. It has been developed over the past 18 months with the US team, formerly Madison Harbor Capital, which Aviva bought in April 2008 and which specialises in secondary investments.

The capital raised at AIREC Partners’ first closing is likely to be $100m, Mansley said, with most equity being committed by Aviva clients. Aviva’s real estate multi-manager business (REMM) has been growing rapidly and Mansley said it now manages about 30 segregated accounts, including three internal mandates: the Aviva staff pension scheme and two Aviva life funds. About one third of the mandates are international.

Last September, John Gellatly joined from BlackRock Investment Management as European head. In November, BlackRock transferred the management of its UK and its European real estate fund of funds to Aviva, which have been rebranded under the Aviva name. Gellatly previously managed the funds at BlackRock.

AIREC Partners is likely to make early investments in the US, where other secondary fund managers have reported a significant flow of deals because of distress in the market. But in the UK, fund unit prices bounced back strongly in Q4 2009, following the trend in the direct market. Scottish Widows has just raised new equity for its specialist UK airport property fund, at a small premium to net asset value.

Speaking at Expo Real last October, Ed Casal, co-founder of Madison Harbor and now Aviva fund manager for AIREC Partners, said: “There are certain points in real estate cycles where secondary pricing gets attractive, but we trade through all cycles.”

Several other US managers specialise in secondary funds, including Liquid Realty and Landmark Partners. Landmark European property head Paul Parker said: “In certain pockets in Europe there is a sense that all the dislocation has subsided and the secondary opportunity has passed by, but that is completely opposite to the feeling in the US.

“Landmark has been operating for 14 years and there are opportunities to exploit all the time. The indirect market has grown hugely and there will always be investors who need to rebalance and manage their portfolios.”

Mansley said: “We will do deals with LPs, but quite often there is more urgency from managers who want to get on and do things.” AIREC Partners will be Aviva’s second launch in Q1 2010. This month it closed a UK recovery fund with £250m of equity.