UNITED STATES - New Jersey Division of Investment has decided to shift $250m (€190.5m) worth of commitments planned for commingled funds into different investment opportunities on the back of market performance worries.
The pension fund investor had earmarked 100m for the AEW Core Property Trust and another $250m for the Morgan Stanley Real Estate Fund VII Global but pension fund officials are concerned about investing capital into commingled funds where the value of the real estate has yet to bottom out.
Instead, it is considering investing in real estate debt strategies, and may purchase other pension funds' commingled fund positions.
The open-ended Core Property Trust, to which New Jersey had committed in December 2007, now has total assets in excess of $500m while Real Estate Fund VII Global, but in both cases New Jersey never actually signed the contract.
Pension fund officials now say there will be strong investment opportunities in this area given the lack of accessible debt in the marketplace, so strategies could include CMBS positions and whole loans in traditional US core real estate with loan-to-value (LTV) ratios of no more than 65%.
It is understood this strategy can produce high single digit or low double digit returns, providing they assume the risk of very safe and private real estate and getting fixed income kinds of returns.
New Jersey also believes many other institutional investors are hurting for cash and may therefore be willing to consider selling out of a position in a commingled fund to another investor at a discount.
It might be one way for a pension fund to raise some cash and get closer to their targeted allocation for real estate, say sources close to the fund.
New Jersey had a real estate portfolio valued at $2.2bn at the end of 2008, equating to 3.6% of the pension fund's total plan assets.
Its target real estate allocation is 4%, and is part of the plan's alternatives asset class, which has a targeted allocation of 10.3%.
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