UNITED STATES - US pension funds are showing increased interest in moving capital to commingled funds that make entity-level investments, as two major funds have invested in funds holding direct property.

The Alaska Retirement Management Board has recently approved a $50m (€34.1bn) commitment into the Five Arrows Realty Securities V, LP while California State Teachers Retirement System has made a $200m investment into the MSRE Special Situations Fund III.

Until about six months ago, pension fund capital was being priced out of the market for many direct investments in public and private real estate companies because other cheaper sources of capital to buyers.

This situation has now changed as so many financing sources have been reduced on the back of the summer credit crunch and the days of 80-90% debt on these deals are no longer a possibility.

While it hasn't really resulted in any change in yield terms by the managers, some companies who had previously rejected pension fund capital have now been in contact again to express their interest.

The Realty Securities V commingled fund, managed by Rothschild Realty, is now attempting to finish its fundraising as quickly as possible but is shooting for a total equity raise of no more than $750m by the first quarter of 2008, as the real estate manager is unsure how long the entity-level investment market will be favorable to its source of capital and would like to have capital placed in the market as fast as possible.

Realty has made one investment to its fund so far - a $110 investment with T.Wall Properties to invest in office buildings in and around the Madison, Wisconsin, market.

CalSTRS also made its commitment, on the recommendation of its independent real estate fiduciary Courtland Partners, to Morgan Stanley's $5bn Special Situations Fund III.

One of its most recent investments was a $100m transaction with commercial real estate specialty finance company Gramercy Capital Corp.


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