The New Jersey Division of Investment will focus on value-added strategies as it seeks to deploy more than $1bn (€912m) in real estate markets.
The pension fund has approved its investment plan for the next fiscal year. According to board meeting documents, $1.02bn will be called or invested over a 12-month period from the end of June 2015.
New Jersey believes value-added strategies offer a more attractive risk-return profile compared with core strategies where cap rates are historically low.
The pension fund will consider domestic and global investments in a variety of structures, including funds, separate accounts and co-investments.
The pension fund is going to make a $125m allocation to TPG Real Estate Partners II, a $2bn fund managed by TPG Holdings with an 8% target return.
The TPG fund will have $1bn to $2bn worth of co-investment opportunities in which New Jersey could participate.
New Jersey has observed that TPG has invested $2.7bn of equity in 12 real estate investments since 2009. Six of the 12 investments have been fully or partially realised or publicly marketed, generating a 25% net IRR and a 1.9x equity multiple.
TPG Real Estate Partners II will invest from offices in San Francisco, New York and London.
The fund will look at niche property sectors where it can build platforms and achieve scale, as well as investments in out-of-favour sectors, distressed assets and corporate platforms, and real estate-intensive operating companies.