Kentucky Retirement Systems (KRS) and MassMutual Life Insurance Company have agreed to commit €425m to Baring’s second European value-add real estate fund.
KRS stated in a board meeting that the pension fund and MassMutual, which owns Barings, are each committing €212.5m to Barings Real Estate Europe Value-Add II.
Both parties were sole investors in the first value-add fund in 2018, each committing €175m.
The new fund is intended to raise capital from other investors and the commitment from KRS is contingent on it not exceeding 25% of total capital raised.
Barings is seeking to raise €750m in total, limited to a maximum of €850m, and is expected to hold a first close in February and a final close by the end of 2020.
The main strategy of the fund is to reposition existing assets in major Western European markets, but it will also pursue build-to-core investments and acquire assets that are deemed to be priced inefficienctly.
The first fund invested mostly in office assets – it recently sold an office in Milan to M&G for €136m – but the new vehicle will have a greater focus on logistics and will be able to allocate some capital to alternative property types, such as student accommodation, senior housing, apartments and hotels. Retail will be considered on selectively.
Barings will target a net internal rate of return of between 12% and 14%.