Friends Life, the UK pensions, investments and insurance company, has awarded a £500m investment mandate to a subsidiary of Prudential Financial to originate fixed rate commercial real estate loans through Pricoa Mortgage Capital Company.
Pramerica Investment Management, the asset management arm of New York-listed Prudential Financial, won the senior debt mandate after a competitive request for proposal (RFP) tender process began at the turn of the year.
CoStar News understands that Friends Life has been in exclusive talks with Pramerica Investment Management over the mandate for around three months after receiving substantial interest from a diverse range of senior lending, including M&G Investments, AXA Real Estate, Starwood Capital and Henderson Global Investors.
Pricoa Mortgage Capital Company, Pramerica’s London-based mortgage business, will originate senior, fixed rate loans with maturities of between five and 15 years, secured by UK commercial properties.
The £500m capital is drawn from the Friends Life’s annuity funds, which currently do not have a material exposure to commercial property rental flows.
Friends Life’s said the exposure to UK commercial property senior debt offers a diversified risk exposure from its existing corporate bond book while increasing its annuity funds’ returns through the generation of sustainable cash flows.
Mark Versey, chief investment officer at Friends Life, said: “We are very pleased to begin this new relationship with Pramerica’s mortgage business. After extended analysis of our annuity fund portfolios, we identified CRE loans as an attractive alternative source of assets to effectively meet the ongoing needs of the funds.
“Pramerica demonstrated their expertise in managing this asset class and we look forward to working with them going forward.”
Michael Jameson, head of Pramerica’s commercial mortgage institutional funds management business, said: “There is a growing demand among commercial property owners and borrowers in Europe to seek financing from well-established, experienced global lenders.
“That demand, combined with the strategic opportunities available in the current economic climate, is why we entered Europe. We are proud that an established firm such as Friends Life has chosen to work with us, and we look forward to providing them with the same high quality service and flexibility our clients have come expect.”
In the original RFP back in January, Friends Life stipulated that it was seeking a senior loan originator prepared to co-invest alongside on a 50:50 basis.
Originally, Friends Life was seeking to allocate from two pools of capital:
the first pool, of between £300m and £500m sourced from its annuity book, was seeking to invest in small, granular loans – of around £25m to £50m – over long-dated, fixed rate durations.
The second pool, of between £100m and £200m from Friends Life’s with-profits book, was seeking shorter-term floating rated senior debt investments.