Pramerica's UK strategy snares £135m separate account

Major corporate pension fund invests with Pramerica for a UK ground rent strategy amid ‘growing trend’ of investors moving away from traditional products, such as index-linked gilts and corporate bonds.

Pramerica Real Estate Investors has announced a £135 million (€156 million; $216 million) investment by a corporate pension fund to a separate account for a UK ground rent strategy demonstrating a desire by some investors for alternatives to traditional financial investment products.

The US firm said the decision by trustees to the “major” corporate pension fund reflected the “ongoing trend of investors moving out of investments such as index linked gilts and corporate bonds, and into alternative investments such as ground leases, which provide the potential for better returns with similar levels of risk”.

The commitment to Pramerica represents the unnamed pension fund’s first investment into UK ground leases, and it has mandated the firm to invest in both commercial and residential property in the UK with very long ground leases of over 75 years, which typically offer investors the benefits of long term, secure income derived from high quality assets. 

However, unlike with the UK Ground Lease Fund that Pramerica took over the management of in 2010 from UBS, the separate account mandate would also allow Pramerica to target assets with rent reviews of up to 15 years, as opposed to seven years.

In August this year, Pramerica announced it had raised an additional £98.3 million of equity from institutional investors for the fund. Together with the new separate account, it now has some £400 million to deploy in the strategy, it said.