Aviva funds rake in £1.2bn from real estate recovery

More than £1.2bn of cash has flowed into Aviva Investors’ UK property funds from retail and institutional clients since the market started to bounce back last summer. Richard Jones, UK managing director of Aviva Investors Real Estate, said: “The first money to come in was for the pooled pension fund and that started early last summer, when we could see a recovery coming. We have probably taken £400m into that fund.

“Our retail fund, the Aviva Property Trust, started seeing money come in from July/ August onwards and the rate increased through the rest of the year. We are taking in about £50m-£60m a month.” Aviva’s experience of the dramatic turnaround in capital flows for UK real estate is shared by most large property investment managers. Last month, Aberdeen Property Investors said it had spent £250m in the final quarter of 2009 and had a further £500m from segregated clients. The Association of Real Estate Funds reported record quarterly net capital inflows of £2.9bn in Q4 2009.

Jones said: “We have invested between £500m and £600m since last summer and we have that much again to invest in the next six months, with about £300m of property under offer.” Aviva’s cash includes the £220m raised last month for its UK Recovery Fund, an ungeared pooled fund targeting 8%-10% returns. Ian Womack, chief executive of Aviva Investors Real Estate, admitted that the speed of the recovery had been surprising. In the first half of 2009, his team were trying to sell more than £1bn of property, some of which they subsequently withdrew when the market began to improve.

“We have had a lot of growth, probably earlier than we would have expected or liked. But we are cautiously optimistic that there will not be a double dip to the recovery,” Womack said. Aviva has also just re-opened its flagship European Property Fund, which it closed in November 2008 to stem investor redemptions.

France and Japan funds wait in the wings

Aviva is soft marketing new funds to be launched this year in France and Japan. Both funds will have core/core plus strategies and will focus on offices. The French fund will buy assets in Paris. The fund manager launched the Asia Pacific Property Fund two years ago and is considering strategies to capitalise on the value and recovery in Japan, focusing on Tokyo, where yields are attractive.

Aviva Asia chief executive Ian Hally said that after the distress of the past two or three years, “competition is weak” in Aviva’s preferred Asian markets. He said this was particularly true in Australia, “where the listed property trust sector is not particularly active yet,  leaving the door open for global investors like ourselves”, and in Japan, “where the investment bank funds are out and domestic pension funds are not focused on real estate”.