In a twist on cross-border investment, a long-standing UK pension fund has written a £500 million equity commitment to a US firm to make senior commercial property loans in its own domestic market.
Friends Life, which can trace its origins back to 1810 and has £114 billion ($170 billion; €132 billion) of assets, has made the commitment of half a billion pounds to Pramerica Investment Management to invest in commercial real estate loans with the equity coming from its annuity funds.
In a statement, Friends Life said it believed an allocation to CRE loans would increase returns and “sustainable cash generation” by delivering “more value in the annuity book.”
Mark Versey, chief investment officer at Friends Life, said: “We are very pleased to begin this new relationship with Pramerica’s mortgage business. After extended analysis of our annuity fund portfolios, we identified CRE loans as an attractive alternative source of assets to effectively meet the ongoing needs of the funds. Pramerica demonstrated their expertise in managing this asset class and we look forward to working with them going forward.”
The commitment has been made to Pricoa Mortgage Capital, which is owned by US financial services company Prudential Financial but is not to be confused with Prudential Real Estate Investors, which is Prudential’s global real estate investment management business that manages mezzanine and junior debt funds in Europe headed by Andrew Radkiewicz.
Pricoa Mortgage Capital is already among the largest commercial mortgage lenders in the US and began extending loans in Europe only last year.
Michael Jameson, head of Pramerica’s commercial mortgage institutional funds management business, said: “There is a growing demand among commercial property owners and borrowers in Europe to seek financing from well-established, experienced global lenders. That demand, combined with the strategic opportunities available in the current economic climate, is why we entered Europe. We are proud that an established firm such as Friends Life has chosen to work with us, and we look forward to providing them with the same high quality service and flexibility our clients have come expect.”
Friends Life explained its annuity funds did not currently have a “material exposure” to any commercial property rental flows, so adding CRE loans to these portfolios “facilitated a diversified risk exposure away from corporate bonds for particular credit ratings”.
The CRE assets will be UK-based, senior secured, fixed rate loans with maturities of between five years and 15 years, with loans being originated by Pramerica’s London-based mortgage business, Pricoa Mortgage Capital Company.
Drew Abernethy, a London-based principal at Pricoa Mortgage Capital said: “Friends Life and Pricoa Mortgage Capital's mandates are very complementary. For large loans, our ability to provide Friends Life debt alongside Pricoa Mortgage debt is not only a major advantage for both lenders, but it is a major advantage for the borrower.”