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New pooled fund structure caters to corporate pensions

Aberdeen Property Investors has teamed up with Swedish insurer Folksam to create a pooled fund structure open only to companies within the Folksam Group. Aberdeen plans to roll out this new type of instrument for indirect property investments to other large multinational companies with separate pension plans.

 Lars Graneld, head of the AIPP Folksam Global fund at Aberdeen

Lars Graneld, Aberdeen: better terms

"It’s a hybrid between a fund of funds structure and separate accounts that will suit certain investors, such as multinational corporations that have relatively small pension plans across many countries," says Lars Graneld, head of the AIPP Folksam Global fund at Aberdeen. "Here you can have the critical mass for investment by pooling contributions into one Luxembourg-based vehicle." The new fund solves several problems for the client. Even in the case of large multinational companies, pension plans in one country rarely come to a critical mass to meet the minimum investment many real estate funds require – about €10 million. A client looking for a diversified portfolio needs to be invested with five to 10 funds.

"If you can pool five, 10 or 20 pension funds together like we’ve done with Folksam you can get to the critical mass," explains Graneld. "It opens up this market, which is otherwise closed to the smaller pension fund clients."

Folksam has been an investor in Aberdeen’s existing fund of funds offerings, and was looking to increase its allocations to indirect real estate investments. Instead of increasing its investments to new Aberdeen fund of funds offerings, the Swedish insurer was looking for a vehicle that would give it slightly more input than a traditional fund of funds investor. Aberdeen has solved this by putting Folksam representatives on the board of directors of the management company where investment decisions are taken. Aberdeen and Folksam take the decisions together, and Folksam’s representatives have a veto for investment decisions.

"Folksam wanted more control over investments and are happy with this structure. They get better terms, and it’s more cost-efficient for them," says Graneld.

The AIPP Folksam Global fund has turned out to be a hybrid between the fund of funds structure and the separate account format. Separate accounts require a lot more involvement by the client on the investment side and even more so on the administration side. With separate accounts, investment decisions fall entirely on the client and the investment adviser, in this case Aberdeen, only recommends what it thinks the client should be doing.

With this new fund format, Aberdeen takes care of the administration side and collaborates with Folksam on the investment side. It also tackles the problem of the high minimum investments that characterize funds of funds, which had been a stumbling block for Folksam’s various pension funds in the jurisdictions in which it operates globally.

AIPP Folksam Global is an umbrella fund with two sub-funds – one for Asia and one for Europe. The initial investment capital is more than €100 million distributed equally between the sub-funds. The structure is open for additional annual capital injections. Aberdeen plans to make an average of one investment in Europe and Asia, respectively, each quarter so that the pool after the first three-year period will contain 10 to 12 funds in each region. By using AIPP Folksam Global, companies within the Folksam group can invest via a joint Luxembourg-based structure. This offers the Folksam Group the potential to coordinate its indirect property investments, thereby ensuring cost efficiency and offering greater diversification for the group as a whole.

Now that Aberdeen has successfully created the fund for Folksam, the firm will seek to market the concept to other corporate pension clients with similar needs.

"We often like to have one case signed, sealed and done before starting marketing," says Graneld. "We’ve just launched this product and now it’s time to market the product to clients across Europe. We have shown we’ve been successful in creating a pooling structure that we can easily do for other clients."