US - The Iowa Public Employees Retirement System has moved its real estate investment strategy into debt for the first time with a request for proposal (RFP) for as much as $200m (€160m) to be placed into debt funds.
Judy Akre, director of communications, said IPERS believes there is an opportunity for high risk-adjusted returns in high-yield real estate debt.
She also pointed out that current and expected demand for capital to refinance existing commercial real estate debt greatly exceeded the supply of available capital.
IPERS is estimating an 8%-12% return for the strategy.
Akre said the pension fund could hire more than one debt fund manager, depending on how many commingled funds were available, the quality of the funds being offered and their capacity.
IPERS will be looking to provide a variety of debt structures, including mezzanine debt, b-notes, first mortgages and, in some cases, preferred equity investments.
The investment programme will only cover properties located in the US.
IPERS is also aiming to provide debt for existing properties only.
The pension fund will not be targeting any particular property types.
The preference will be to invest in stabilised and cash flow properties, with the aim of providing debt for a national portfolio of properties.
IPERS mostly owns real estate - a combination of private and public - through separate account managers. The private portfolio owns a combination of office, industrial, retail and apartments.
The pension fund's real estate portfolio is worth more than $2bn, and the asset class currently makes up 8.7% of its overall assets. Its targeted allocation for real estate is 8%.
Responses to the RFP are due by 7 September.
IPERS is looking to make a final decision at its 6 December board meeting.