Abrdn targets £1bn with Real Estate Debt fund

Craig MacDonald

Edinburgh investment giant Abrdn said it raised £205 million at the launch of its UK-focused Commercial Real Estate Debt fund II (CRED II), with a target of growing to £1 billion in commitments.

Abrdn said the semi-open ended fund is “an evergreen, UK-focused strategy” for institutional investors.

Abrdn said the fund draws on the combined strengths of its £113 billion fixed income team, its real estate team representing over £42 billion of assets, and its private credit business with over £11 billion.

“CRED II is designed to generate attractive levels of income by investing in a diversified portfolio of predominantly senior, investment grade real estate debt assets,” said Abrdn.

“The fund will have an average rating of BBB, and is targeting spreads and illiquidity premia in the range of 375-575bps and 100-300bps respectively.

“The fund aims to grow to £1bn in commitments, having had a first close of £205m with public and corporate pension schemes in the UK.

“A number of prospective clients are considering the upcoming second close, as the fund is offering an ‘early bird’ discount until September 2022.

“Investors were attracted by the exciting potential market opportunity in commercial real estate debt, with spreads reaching 10-year highs as a result of the growing funding gap.

“Increased bank balance sheet provisions in light of expected Covid-19 related defaults have reduced the banks’ ability to provide new financing.

“Overall, the asset class can offer the potential for better yields relative to public corporate bonds, shorter tenors compared to many other private credit areas, as well as high quality security and robust covenants at an asset level.”

Peter Hall, partner at Momentum Investment Solutions & Consulting, added: “Private credit is an important addition to an institutional portfolio, and given the attractive spreads seen in the real estate debt markets, we see Abrdn’s CRED II fund as a promising solution to capture this opportunity.”

Abrdn said that CRED II’s semi-open ended nature provides flexibility for investors to adjust their exposure over time, and offers potential liquidity options to DB pension schemes that are considering buy-out.

“The semi-open ended nature allows our clients access to the illiquidity premia of the asset class alongside some redemption optionality …” said Abrdn.

“The industry-leading and transparent approach to providing liquidity has been a strong attractor for the offering.

“The fund will take a sustainable approach to lending, using Abrdn’s robust Fixed Income policy and proprietary Real Estate assessment tool.

“Based on a detailed analysis of the property, sustainable KPI’s will be identified and should a borrower demonstrate progress against the KPIs, they will be eligible for a discount on their spread/margin.

“Influencing ESG improvements within Private Credit can be difficult given the ownership structure, so we are pleased to provide one solution.”

CRED II will be managed by Neil Odom-Haslett and Martin Barnewell.

Odom-Haslett is the Head of Commercial Real Estate Debt at Abrdn and is also President of the Association of Property Lenders.

Craig MacDonald, Global Head of Fixed Income, Abrdn, said: ”Our private credit offering has evolved considerably over the past few years.

“We listen to our clients and have designed products and solutions with their needs in mind.

“CRED II is no exception, combining the track record of CRED I with the attractive market opportunity we’re seeing in this space.”