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Aviva’s CIO discusses European city strategy

There are 800 cities in the EU, including over 100 with a population of over a quarter of a million. Selecting these cities for office investments is a very focused strategy, says Aviva Investors.  The 12 cities are:

Megacities

1. London

2. Paris

International business hubs

3. Munich

4. Dublin

5. Frankfurt

Regional powerhouses

6. Lyon

7. Stuttgart

8. Hamburg

Tech cities

9. Copenhagen

10. Berlin

11. Amsterdam

12. Stockholm

Mark Versey, Chief Investment Officer, Aviva Investors Real Assets, explains:

“These are large-scale developments with a mix of retail, office and residential. We have some exciting projects underway in Paris and London, in particular.

“We really like the alternatives sector in the UK. Care homes and purpose-built student accommodation are the two standout use cases we’ve been investing in recent months. Both have great covenant strength and offer stable long-term cash flows. Over time we expect that model to be replicated across Europe, underpinned by structural societal shifts.

“A lot of global investors are looking to invest into UK commercial property, but are waiting to push the button on investment due to uncertainty around Brexit. Today, the global flows are toward continental Europe. And because we have a large real estate business in Europe, we can act as a conduit for those global flows into European cities we like. The demand for real assets remains strong from global players.

“The boundary between the different asset classes in the private market has been blurring. At the same time, investors are looking to increase their allocation to real assets by 50 per cent by 2025, a huge transition.

“Investors are looking across the spectrum and increasingly want multi-asset portfolios, with an outcome-oriented focus. Clients typically want growth, or long income, or a private debt portfolio. What we are able to do is mix together infrastructure, real estate and private debt to provide those three outcomes.”

Versey says there are clear risks on the horizon from both a domestic and global perspective. A lot of these risks are difficult to quantify in terms of outcome and implications for markets (i.e. Brexit, trade wars, etc). Additionally, interest rates and inflation continue to pose a material risk to pension schemes and, in the absence of a strong view, we continue to support mitigating this risk despite current yield conditions.

“From a strategic perspective, we continue to advise our clients to reduce/remove risks and exposures where we have limited conviction in them being rewarded for the risks taken. This has resulted in us increasing or introducing exposures that mitigate risks and/or are more certain to deliver returns commensurate with the risks being taken.”

james.wallace@realassetmedia.com