UNITED STATES - Los Angeles City Employees' Retirement System is getting close to making a $25m (€17.6m) commitment to the ING Clarion Debt Opportunity Fund III.
The pension fund believes now is a good time to invest some capital into the debt side of real estate as it has a long-term outlook on debt investment but believes the commingled fund will work to take advantage of the current debt market dislocation.
Los Angeles City will be joining soon several other pension funds who have already committed capital to the commingled fund, including $65m from Contra Costa County Employees Retirement Association and $30m each from Arkansas Teachers Retirement System and Utah State Retirement System.
The total projected capital raising for the fund is $1bn while the maximum amount of leverage on the fund is 60%, to deliver projected net return of 15% IRR for investors.
Debt Opportunity Fund III will only make investments in the US but will look at a variety of debt investments including CMBS transactions, B-notes, collateralized debt investments and other real estate-related debt deals.
Most of the transactions for the commingled fund will be in the range of $5m to $50m.
A decision to invest with ING Clarion was made by the fund at its 9 September board meeting, at which the pension fund also had a presentation from its general consultant, Pension Consulting Alliance, on infrastructure.
No formal allocation for infrastructure was approved at the meeting but it is understood the pension fund will discuss the sector at a future meeting.
PCA considers infrastructure to be an emerging asset class that can give the pension fund diversification and enhance the overall returns of pension fund assets.
That said, the consultancy also the best investment route would be through commingled funds so the priority will be to make sure it selects the right manager.