Aviva opens umbrella for funds seeking secure returns

Pension schemes will be able to invest in all five underlying REaLM fund

Aviva Investors has set up an umbrella fund for UK pension schemes which want long-term secure income, after taking in £725m in one year to five funds with this strategy.

Aviva said its five “Return Enhancing and Liability Matching” (REaLM) funds had seen strong demand and inflows since they were launched 12 months ago. Covering five sub-sectors – infrastructure, commercial property, social housing, student housing and ground rents – they aim to offer 25- to 35-year, inflation-linked income to pension funds looking to match liabilities, with a higher return than comparable duration index-linked gilts.

Phil Ellis, client portfolio director at Aviva, said the umbrella fund would allow investors to invest in all five underlying funds and could appeal particularly to smaller pension funds that did not want to make their own selection decisions.

“The start was to create sub-sector funds in which a multi-sector fund could invest. At first we mainly talked to larger clients and investment consultants and as more people got to know about it, consultants introduced us to smaller clients.”

He said interest in low-risk assets that could offer higher investment returns than fixed income had been growing since 2004 when Aviva launched the Lime Property Fund. The Lime fund buys slightly shorter income streams and has a bias towards public-sector property. It has grown to NAV of c£850m.

The return benchmark for the REaLM funds is 1.5% net above index-linked gilts. Ellis said the estimated additional yield pickup over index-linked gilts was currently higher, at 2-2.5% for commercial and as high as 5% for some infrastructure assets.