BlackRock has for the first time in the UK designed a core strategy of buying alternative assets such as student accommodation, ground leases, primary healthcare and housing associations as it attempts to capture institutional investor demand for long-term inflation-linked income.
Some £250 million (€290 million; $383 million) has already been raised for its Long Lease Property Fund from six pension schemes, revealed the behemoth manager, and so far more than £100 million has been invested to seed the fund.
The assets bought on behalf of the investors have an average lease term of more than 20 years, it added.
Though BlackRock has been investing in alternative property asset classes in the UK for ten years, the New York firm said this was the first time it had offered a fund that focused on alternative sectors such as ground leases and student accommodation. To that point, the firm insisted that the assets to be gathered were different to those for BlackRock’s flagship UK vehicle, The BlackRock UK Property Fund. While the UK Long Lease Property Fund can and probably will invest in more traditional commercial long-lease assets such as supermarkets and offices, it will major on niche areas.
The significant move to launch a standalone product for certain alternatives underlines the demand among institutional investors for long-term inflation-linked income streams. In October last year AXA Real Estate Investment Managers, the real estate investment management arm of French insurer AXA, announced plans to increase investments in niche areas such as healthcare, student accommodation and police stations to more than €1.5 billion. AXA said it had taken the decision to double alternative assets under management because of increasing investor demand for these sorts of properties.
Earlier this year Aviva Investors said its Lime Property Fund – which has invested in 12 different sectors including healthcare, education, and libraries – reached the milestone of £1 billion in assets under management. The fund was created to meet the “growing demand of UK pension funds wanting to invest in lower-risk property assets” with the aim of offering a better return than from fixed income assets.
Similarly, BlackRock said of its new offering that not only was it attractive to pension funds and other investors that were looking to match liabilities with inflation-linked income, but also offered the potential to outperform index-linked gilts and diversify fixed income portfolios.
Marcus Sperber, head of real estate for BlackRock in Europe, the Middle East and Africa, said: “Both traditional and non-traditional real estate can provide pension schemes with alternative sources of long-dated income, but we see alternative property assets coming into vogue.”