Principal and Willis Towers Watson team up for long-income fund – Exclusive

The fund has received a €30m commitment from Willis Towers Watson’s secure income fund and intends to deploy €800m in the next five years.

Principal Real Estate Europe and global advisory firm Willis Towers Watsons have launched a long-income European real estate fund together.

The open-ended vehicle was launched in October with a goal to invest more than €800 million in the next five years, according to Jos Short, executive chairman of Principal Real Estate Europe, the European asset management arm of Des Moines-based financial services firm Principal Financial Group.

PERE understands the fund can be used to acquire a variety of commercial real estate with leases of at least 14 years fixed term in the eurozone area. Target markets include Germany, the Benelux region and France. The firm aims to generate a return to investors that outperforms’ Europe’s inflation rate by 225 basis points on an unlevered basis.

Willis Towers Watson is involved in co-designing the fund’s investment strategy by leveraging the firm’s relationship with institutional investors, according to Duncan Hale, portfolio manager at the London-headquarter firm.

“A number of our clients in Europe, as well as broader Asian clients, are trying to access those type of assets. So, we’ll work with Principal to identify attractive parts of the market and to develop a strategy that meets their needs,” said Hale.

Willis Towers Watson declined to comment but PERE can reveal that the firm’s Euro Secure Income Fund has committed €30 million in the vehicle, according to a source close to the situation. Launched in February this year, ESIF provides access to secure income assets for Euro-denominated pension funds.

Robert Leadbetter, fund manager at Principal Real Estate Europe, told PERE there were few competing products for such long-dated real estate assets in Europe. Subsequently, as bond yields remain low, investing in these assets has become a more attractive alternative to bonds of equivalent credit strength.

“It is common in the UK to see a 25-year lease while it is much less common to see that in Europe. For managers that can access these assets, that’s a real opportunity,” said Short. He pointed out the firm started evaluating investments in the European long-income real estate market as early as 2018, tracking more than €1.3 billion of opportunities which fit the strategy’s profile.

The firm has already made its first acquisition for the funds of a temperature-controlled warehouse asset in north Amsterdam in a deal valued at €13.3 million and on an initial yield of 5.3 percent. The property has a weighted average lease term of 20.5 years. The Eye Film Museum is one of the major tenants.