AXA REIM launches UK fund to match pensions’ liabilities

The real estate investment management arm of French insurer AXA has created a fund aimed at providing institutional investors with property-based, liability-matching investments with long and secure income streams.

AXA Real Estate Investment Managers (AXA REIM), the real estate investment management arm of French insurer AXA, has launched a fund aimed at acquiring property long leases in the UK.

The firm announced it had launched the UK Long Lease Property Fund on behalf of institutional investors, particularly pension funds, which are keen to fund real estate investments that would match their long standing liabilities with long standing and secure income streams.

The open-ended fund has been started with initial equity of £125 million (€153.3 million; $201.1 million) and AXA REIM expects it to grow to £1 billion of equity commitments during the coming five years.

As its target investments suggest, the fund is “defensive” in nature although AXA REIM said it would market the fund also to investors familiar with less mainstream property asset classes and with hotels. Nonetheless, the firm said it would have a focus on “strong property fundamentals” when making investments, the central tenet being a long lease of 20 years or more that is subject to inflation indexes or fixed rental uplifts.

Deborah Shire, global head of business development at AXA REIM, said: “With bond yields remaining at record lows, liability matching has become the key challenge for many institutions and pension schemes in particular. We believe that the stable long term and mostly inflation indexed income generated by long lease property offers an attractive alternative for investors, while, at the same time providing diversification benefits to the rest of their fixed income and property portfolio.”

For AXA REIM, which managed more than €43 billion of assets at September 2012, the introduction of this fund will provide another opportunity to invest in alternative asset classes including healthcare, leisure and automotive properties as well as ground leases. In October last year, the firm launched an alternative property investment vehicle called Alternative Property Income Venture hoping to double the €750 million of assets it classified as alternative already on its books. Among the target asset classes for this vehicle were police stations which it said benefited from government backed leases, also on long leases.