UNITED STATES - California State Teachers Retirement System is in the process of increasing its efforts investing capital into real estate debt, having just invested $500m (€354.5m) in that arena.
CalSTRS is considering additional making fresh allocation to debt funds as officials believe the risk adjusted returns earned through debt are currently better than equitied in today's market.
The pension fund anticipates investing it will achieve unleveraged IRR returns of 10-14% by investing in debt structures over the next year.
CalSTRS has already made investments in distressed debt as well as providing financing for traditional real estate assets.
A $300m commitment was made to distressed debt through the Lone Star Fund VI (US) LP - which is now attempting to collect $5bn through a fundraising - following a recommendation of its real estate fiduciary adviser, The Partners Group.
The global strategy commingled fund manager has historically invested in Japanese, Korean and German distressed debt but recently made news by buying large sums of residential debt at significant discounts from investment banks such as Merrill Lynch.
Fund VI currently has a wide investment strategy for transactions in secured and corporate unsecured debt, financially-oriented companies and operating companies with significant tangible assets.
At the same time, CalSTRS has made a $200m commitment into the CanyonPSR III fund, to which the pension fund provided 99% of the capital for the fund - which it considers as acting more like fixed income - in return for net IRR of 12%.
Calyon's investment strategy is to take advantage of the lack of available debt capital by providing first mortgage loans at historically high spreads to traditional real estate owners of office, industrial, retail and apartment properties.
CalSTRS is now understood to interested in further investing in such debt from its fixed income allocation.