Aviva Investors has launched a new £1.5bn real estate fund, which will focus on building a portfolio of net-zero assets and provide defined contribution (DC) pension schemes with new property investment options.

The Aviva Investors Real Estate Active fund, is the first fund under the manager's Long Term Asset Fund (LTAF) regime and has been initially backed by capital from Aviva UK Life's with-profits funds.

Aviva Investors said that the new fund will enable DC pension funds, master trusts and local government pension funds to access real assets investments more easily.

The fund will be managed by Tim Russell, senior fund manager at Aviva Investors and will have a long-term absolute return target. It will regularly review ongoing carbon emissions generated by buildings in its portfolio and net-zero audits will be conducted to understand each building’s progress to achieving net-zero status.

Aviva Investors confirmed that it will also undertake social value audits to assess the social needs of areas immediately surrounding each building along with the contribution these assets make to surrounding communities.

The manager explained that it believes that real estate assets that incorporate sustainability considerations will materially outperform those that do not "adequately price-in material risks from sustainability-related obsolescence".

Aviva Investors' chief investment officer, real assets, Daniel McHugh, said real assets are an important element of long-term investment strategies, whether it be for risk or return diversification, or to provide regular, inflation-linked income.

"They are also a vitally important ingredient in the transition towards a just and socially equitable low carbon future," he continued.

"Yet, until now, a significant portion of the UK’s wealth and pension market — particularly DC schemes — have not been able to allocate to real assets, and certainly not to the extent they would like.

"We firmly believe the LTAF regime will have significant benefits for retirement portfolios, helping to improve long-term investment outcomes for our clients and, ultimately, individuals saving for their retirement.”

Adding to this, Aviva UK Life's head of customer investments Pierre Biscay, said that the fund will allow Aviva UK Life's with-profits funds the opportunity to pool and diversify their existing property holdings whilst also benefitting from the potential growth opportunities available in the sector.

"Real estate remains a key part of our investment strategy and has delivered excellent value for our customers to date," he said.

"We already invest a substantial amount into the UK and its communities by financing offshore windfarms and social housing schemes, improving the energy intensity of the built environment, funding restoration, carbon capture and woodland creation schemes.

"All of this supports our aim to help the UK become climate ready. We believe this new fund can help us do even more, making the most of the investment expertise of the real assets business and its ability to find projects that can deliver long-term value for our with-profits customers."

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