Axa Real Estate Investment Management has won what is understood to be the biggest single property mandate in British history.

The group has been given the remit to run the £2.5-billion property fund portfolio of the Co-operative Insurance Society (CIS), part of the Co-op Group. It has been selected from a shortlist of five groups to run CIS's 160 properties, ranging from industrial estate and shopping centres to high street outlets.

The deal also sees Nelson Bakewell, the agents, take on the responsibility for the operational management. Some of CIS's 25-strong in-house property team will join Nelson Bakewell while others are being made redundant.

Another 28 staff who work on-site will keep their jobs under Axa's management. Axa is expected to announce the sell-off of up to £200-million of property in the next few months as it recycles some of its stock. It will then buy a similar amount of property as it reweights its portfolio. CIS has also selected four asset managers to run its foreign equities portfolios.

It has picked Goldman Sachs for the £300-million of North American equities, UBS for the £300-million European portfolio, Nomura to handle the £150-million of shares in Japan and UBS for the £150-million in Asia-Pacific. The two moves follow a decision by CIS to focus on its strengths - bond markets and UK equities - and outsource areas where it has less expertise.

The group's investment arm will be left with a team of 60 fund managers. The staff who worked on foreign equities will be given new jobs within the investment department. CIS, which has £22-billion under management for CIS's 5m customers, is - along with smile, the internet bank, and the Co-operative Bank - part of Co-operative Financial Services.

CIS chose Axa because of its investment performance and people, according to Bryan Portman, chief operating officer of the insurance group. It had to fit the group's ethos, favouring investment on brownfield sites and in energy-efficient buildings.

CIS takes pride in its emphasis on social and ethical issues and launched an ethical engagement policy backed by customers last week. For example, the group recently voted against the re-election of Lee Raymond as chief executive of Exxon Mobil, the giant oil company, because the group had played down the link between carbon emissions and climate change. Axa was also picked because it had been more cautious about the outlook for property markets than its rivals.

"They said there had been a lot of money coming into the property market over the last three years and as an asset class it had become more important, but they were taking a more cautious view on growth going forward," says Mr Portman. Costs were also an issue. CIS says its property business has outperformed the benchmark data from Investment Property Databank, the research group. But it believes it can do even better through outsourcing. Axa has been given a target of outperforming the crucial IPD benchmark by 1 per cent a year.

At present, CIS has 50% of its property in retail, 30% in offices, 15% in industrial and the rest in indirect property. Its portfolio includes a block on the corner of New Bond Street and Brook Street, the Clyde and Glenrothes shopping centres in Scotland and Sunlight House on Quay Street, Manchester.

Axa has told CIS it is overweight in general retail property and offices but underweight in retail parks and industrial property. As a result, Axa is likely to trade some of the existing portfolio to rebalance it. Industrial is likely to increase from 20%, for example.

There will also be a shift away from CIS's traditional northern exposure towards more southern high-growth areas. However, the group will remain mainly invested in UK property, resisting the widespread rush to invest in overseas markets. In addition, there will be a new emphasis on refurbishment and redevelopment of its assets - in particular its retail property. Most deals will be at Axa's discretion although anything over £100-million must be approved by CIS.

Axa has been hired on a rolling three-year contract. CIS would not comment on the other bidders that had been on its shortlist. However, market rumour has suggested these were LaSalle, Prudential, Savills and CB Richard Ellis. On the foreign equities side, the asset managers have been given targets of 2% outperformance of their peers (although this is 1% for Goldman Sachs in North America.) "The rationale was that when we took into account the expected outperformance there will be a net benefit to the funds," says Paul Sharman, director of investment management at CIS.

Financial Times