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Aberdeen leaves Aviva for dust in property fund chase

Aberdeen leaves Aviva for dust in property fund chase

Aviva Investors pulls launch of Secure Income real estate investment trust after investors back arch rival Aberdeen Standard's new European logistics income fund.

Aviva Investors has pulled the launch of its Secure Income real estate investment trust citing a lack of interest from investors for the high-yielding portfolio of long-dated UK property assets.

Aviva Investors Secure Income Reit told the stock market it had ‘taken the decision not to proceed with an initial public offer at the current time’ but said it would give ‘consideration to reactivating the proposed IPO at a later date’.

This is an embarrassing blow for Aviva’s investment arm, which with £24 billion of property assets is the largest manager of UK commercial real estate. It had hoped to raise up to £200 million in its first investment trust since the Morley Absolute Growth Investment Company (MAGIC) was merged away 15 years ago.

First for Aberdeen

Aviva's failure is all the more acute as arch-rival Aberdeen Standard has just announced it has raised £187.5 million for its new European Logistics Income trust. It is targeting a 5.5% yield from investments in 'big box' warehouses and 'last mile' urban distribution depots linked to the growth in online shopping.  

Although the launch did not reach its £250 million target, the fund raise is a morale boost for the group following the merger of Aberdeen Asset Management and Standard Life this summer.

Martin Gilbert, group co-chief executive, said: 'This is the first investment trust launch by Aberdeen Standard Investments and to have raised £187.5 million is an excellent result and delivers a strong platform from which we can grow this exciting asset class.'

Long-dated nerves

Aviva’s setback is something of a surprise as Secure Income aimed to offer a 5% yield and investors' thirst for income remains intense with interest rates still stuck at post-crisis lows.

Potential investors told Investment Trust Insider they were impressed by the group’s ability to credit rate the tenants in its properties, which underpinned its claim to offer a secure income.

However, there was caution about committing money to a fund investing in leases of 15 years at a point when a risk remains that interest rate rises may accelerate quicker than expected, particularly in the US where tax cuts by president Trump could over-heat its expanding economy.

Speaking before today's announcements and commenting on both Aviva and Aberdeen's launches and a fund raising by Ediston Property (EPIC), Nathan Sweeney, senior investment manager at Architas, commented that all were betting on a continuation of the 'Goldilocks' low-growth, low-inflation environment.

'However, we've seen a global pick-up in global economic growth. At some point that leads to high inflation and interest rates.' Those would diminish the attractions of locking into a long-term income stream from bonds or property, he said.

Tri-Pillar postpones

A crumb of comfort for Aviva is that it is not alone. Also raising the white flag today is Tri-Pillar Infrastructure Fund which is delaying plans to raise £200 million, having extended the offer period last week.

Tri-Pillar, the brainchild of Andrew Charlesworth, former manager of John Laing Infrastructure Fund (JLIF), said it had made ‘significant progress’ in securing a pipeline of investments and had entered exclusive talks for a big acquisition. Nevertheless, it had ‘decided to postpone any further public fundraising activity until 2018 subject to market conditions.’

The announcements by Aviva and Tri-Star underline the difficultly of listing new closed-end funds on the London Stock Exchange. After a busy third quarter of launches, investor appetite has waned with The People’s Trust the most prominent until now of a list of withdrawals that also included the Hipgnosis Songs royalties fund and the PennantPark Income debt trust.

Cooling IPO market

Earlier this month M7 Multi-Let Reit signalled going was tough in the property sector when it gave up on plans to raise £150 million in the initial public offer (IPO) of a UK regional commercial real estate portfolio.

Ediston Property fared better, raising just over £52 million in a placing and open offer. In contrast with IPOs, secondary shares issues from existing investment remains buoyant with nearly £2.5 billion raised since October, according to Numis Securities.

However, Epic fell short of the maximum of around £95 million it had sought to buy four retail warehouse parks from the Stadium Group.

Tri-Pillar’s retreat may signal problems for Greensphere Capital, a sustainable infrastructure investment group backed by venture capitalist Jon Moulton, which is seeking to raise $500 million (£371 million) for a new London-listed fund.

Tufton Oceanic Assets is still seeking to raise over $100 million for a fund investing in second-hand commercial ships.

Despite, today’s announcements this year has been a good one for investment company launches. Eighteen have floated on the Stock Exchange raising £3.35 billion, a sharp recovery from last year when volatile markets and the EU referendum meant there were just six IPOs.

The third quarter saw a flurry of new listings, with eight funds making it to market and raising £1.84 billion, according to Numis. There was a cluster of four focused on specialist property with Warehouse Reit (WHR) raising £150 million, Triple Point Social Housing (SOHO) £200 million, Residential Secure Income (RESI) £180 million and Supermarket Income (SUPR) £100 million.

With investors still digesting these it looks like there was insufficient capacity to support Aviva's UK focused launch but enough interest in Aberdeen's offer of diversification in a European growth market.




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