Aviva Investors eyes infrastructure business growth

Wed Oct 31, 2012 12:03pm EDT

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By Raji Menon

LONDON, Oct 31 (Reuters) - UK asset manager Aviva Investors is preparing to launch a range of funds to invest in infrastructure projects as it looks to win a bigger chunk of pension fund cash.

The fund management arm of Britain's second-biggest insurer Aviva is developing funds that will buy stakes in projects or provide debt funding, interim Chief Executive Paul Abberley said in an interview on Tuesday.

Aviva's existing funds hold nearly a billion pounds in third-party infrastructure assets through a combination of infrastructure debt, real estate and renewable energy funds. But Aviva wants to multiply this several times by tapping pension funds and other institutions.

With volatile equity markets and historically low interest rates, more and more pension funds are becoming interested in "real assets" such as roads, schools and hospitals.

To meet this demand, fund managers investing billions of pounds on behalf of UK pension funds, are hiring infrastructure teams or adding to their existing staff to help to channel cash into these types of investments.

"Insurance-owned asset managers are a natural intermediary between the flows of long-term savings that go into insurance companies and the capital currently required by borrowers. Given the longer investment time horizon on these savings, one obvious investment target is infrastructure," said Abberley.

Aviva Investors currently has an infrastructure team of about six but Abberley said the firm could hire externally if it felt it necessary.

As part of a restructuring aimed at streamlining its asset management business and reducing costs announced in January, Aviva Investors cut some 160 jobs or 12 percent of its global workforce.

The overhaul resulted in senior management departures including that of chief executive Alain Dromer.

Aviva Investors, which has about 274 billion pounds ($439.06 billion) in assets under management, saw operating profits fall to 34 million pounds in the first half of the year, compared with 39 million pounds in the previous year, partly due to lower performance fees.

Abberley said the firm was tailoring its products for risk-averse investors seeking more stable returns.

"Our clients are operating in a world of negative real returns in low-risk, fixed-income assets and potentially a world of financial bubbles in riskier assets," Abberley said.

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