AEW shifts UK fund to impact mandate

Real estate asset manager AEW has converted its UK-focused Real Return Fund to become the “UK Impact Fund”, marking the firm’s debut in the impact investing space.

The fund has been seeded with £100 million ($126 million; €117 million) worth of assets from the Real Return Fund, comprising “specialist supported living, key worker accommodation and care homes together with community and residential-led town centre regeneration projects that influence well-being”, according to the release.

AEW is now looking to raise fresh capital for the fund, targeting institutional investors, local governments and private wealth channels. It is structured as UK PAIF or property authorised investment fund, an open-end vehicle.

In creating an impact vehicle, AEW joins a budding niche within the institutional impact investing space. Investment consultant bfinance noted in a report last year, that the real estate impact market has evolved and diversified in recent years. Until 2017 it had been dominated by social housing strategies. During 2021 and 2022 fund launches have been “considerably more diverse, with PRS [private rental sector] and multi-tenure strategies dominating on the housing side, and a particularly marked move in favour of community regeneration strategies”.

AEW’s fund does not have any impact-linked compensation mechanism in-built; a management fee is charged on net asset value. The predecessor to the fund previously had a net asset value of £192 million according to a now-defunct website. In anticipation of the conversion to an impact fund it sold non-impact and “non-core” assets, returning cash to investors in need of liquidity, a spokesperson told New Private Markets.

AEW, headquartered in Boston, has more than €80 billion under management globally.

The UK impact fund will provide “sustainable real estate with a social use value”, the firm said. This would include residential housing, care facilities, nurseries and leisure and community facilities.

“While the UK Real Return Fund pursued a sustainable investment approach for some time and had invested in social real estate since 2016, the transition to UKIF as an impact fund has included changes to the investment strategy, the prospectus and the inclusion of specific impact objectives,” the firm told New Private Markets.

AEW has worked with advisory firm The Good Economy to adopt an impact management and measurement system to align with requirements of the Global Impact Investing Network and the UN Sustainable Development Goals, the firm said.

“Potential acquisitions are measured against the fund’s Place Based Impact Score prior to acquisition, and only assets that score over a certain threshold, or have the potential of doing so, would be considered for investment,” the spokesperson said. The scoring system assesses the contribution of an asset to place-based impact, and The Good Economy will review the Place Based Impact Scores prior to acquisition, they added.