New Mexico Investment Council has committed $75m (€56.9m) to Ares Management’s European real estate fund as it looks to capitalise on deleveraging in the region.

The institutional investor approved the commitment to the Ares European Real Estate Fund IV, which is targeting the UK, Germany and France, and has so far received $656m in commitments as it looks to raise a total of $1bn.

Vince Smith, deputy state investment officer, said there was a “good investment play” to place capital in Europe.

He said: “The economy in this region still has a way to go before it shows improvement. Even the economy in the US is just starting to pull away from the struggles of the past few years.”

The Ares fund, he added, complimented New Mexico’s other commitments to European investment funds last year, including commitments to Perella Weinberg Real Estate Fund II – mostly a northern Europe and UK fund – and to M&G Real Estate’s Debt Funds II and III.

“The commitment will give us exposure to a different part of Europe,” Smith said.

Ares will look to add value to real estate investments through leasing, re-letting, capital improvements and select developments.

Ares’ pre-specified investments for the fund, he added, gave New Mexico a “good idea as to the exactly the kinds of investments that the manager will be investing in”.

Limited partners in the fund are projected to achieve a gross IRR of 16% to 20% and a net IRR of 12% to 16%. The five-year fund, which will use leverage levels of 60% to 70%, is investing over a three-year period.

New Mexico, Smith added, has room for additional investments in real estate this year and is planning to make additional commitments before year-end.

“This is likely to be in the core sector, with us committing capital to one of our existing core managers,” he said.

New Mexico has a number of existing core real estate managers: Angelo Gordon & Co, Heitman, Jamestown, Clarion Partners, Pramerica Real Estate Investors, UBS Realty Investors and USAA Real Estate Company.