M&G closes on £350m real estate debt funds
M&G Investments has announced the first close of its latest real estate debt funds, raising £350m of capital from four clients.
The capital will be deployed into real estate loans across Europe originated by M&G’s real estate finance team.
The latest funds have reached a first close with £200m investment from LGPS Central Limited, £100m from the Prudential With-Profits Fund and £25m from one of the UK’s largest insurers.
M&G will be raising further capital for these funds and segregated mandates over the next 18 months from global institutional investors seeking potentially double-digit returns available from direct commercial real estate loans in Europe.
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“We are pleased to reach the first close of our latest funds with strong support from a number of cornerstone investors,” M&G Investments co-head of real estate finance Dan Riches said. “Rising interest rates have contributed to a reduction in property valuations, providing investors accessing this asset class now with lower debt bases and subsequently greater downside protection and preservation of capital.”
Riches said the firm continues to see attractive risk adjusted returns in the sector, with European and Asian investors increasing allocations to private market investments and debt.
LGPS Central Limited head of private markets Nadeem Hussain said: “This investment plays an important role in fulfilling our long-term obligations and objectives and we very much look forward to working closely with M&G’s real estate finance team in the future. Their approach to constructing portfolios and experience in managing this attractive asset class is a key driver of our partnership.”
M&G Investments head of UK institutional distribution Grant Hadland said: “We are pleased to have been selected to manage this capital on behalf of LGPS Central Limited and through this strategic partnership.
“This mandate builds upon our long experience of working with local government pension schemes and UK institutional investors. For those pension funds and institutional investors that can withstand reduced liquidity, certain parts of the private markets universe still offer the potential to lock-in higher returns that typically come with lower volatility.”
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The €1.5trn real estate finance market has changed considerably in the past 15 years. It was once dominated by the banks, but alternative lenders now represent around 39 per cent of the outstanding debt in the UK and between 10 and 15 per cent in Continental Europe.
The expectation is that alternative lenders will continue to play a greater role as banks retreat from some parts of the lending markets.
M&G’s real estate finance team is one of the largest alternative lenders in Europe with an international client base spanning the UK, Europe and Asia, and is part of the firm’s £74bn of assets under management as of 30 June 2023.
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