UNITED STATES - The New Jersey Division of Investment is shifting into the use of real estate separate accounts and has hired General Motors Investment Management for a $150m (€106.4m) equity mandate.
The pension fund made this decision at its board meeting on September 20, assisted by its real estate consultant, The Townsend Group, having previously only ceded commingled funds with real estate assets.
And O Ike Michaels Jr, deputy director for the state of New Jersey, said it is possible this latest mandate could be the start of several accounts under this new strategy.
"Our portfolio was at a point where we felt that we could move into separate accounts. We feel very strongly about the people that work at General Motors Investment Management. It's a very stable management team. Many of them have been in the real estate market for as long as 19 years and have been through many market cycles," said Michaels.
"We do think this is an affective way to invest in real estate, if it's done with the correct manager. We are thinking about creating one more separate account in 2007 and maybe a couple more next year," he continued.
General Motors Investment Management is one of the largest investors in real estate in the US on behalf of pension funds, with approximately $9.9bn in real estate equity under management.
Investment strategy for this separate account will be to invest 67% of the capital in the ‘core plus' arena while the remaining 33% will be invested opportunistically.
Returns on the core plus transactions will be a leveraged IRR of 9-12%, given these deals will have leverage of 30-50%. Yields for the opportunistic deals are leveraged IRRs in the range of 15- 20% as leverage in this part of the portfolio will be 60- 75%. Returns on the separate account have also factored in a 7-10-year holding period.
New Jersey's core plus separate account assets will be invested in a mixture of office, industrial, retail and apartment properties across the United States and is hopeful these assets will provide stable/variable income and long-term capital appreciation.
That said, some of deals in the opportunistic sector could be invested internationally in Asia, Eastern Europe, Mexico or Brazil.