Connecticut Retirement Plans and Trust Funds (CRPTF) intends to put $50m (€43m) into Covenant Capital Group’s ninth US residential fund to help increase the pension fund’s underweight value-add portfolio.
CRPTF told IPE Real Assets that once approved it will put the capital into Covenant Apartment Fund IX fund, for which Covenant Capital Group is seeking to raise $400m.
CRPTF, which owns around $2.2bn in real estate assets, is currently underweight value-add strategies. The value-add investments currently stand at $428m or 19% of the pension fund’s real estate portfolio, below its target of 25%.
In a board meeting document, the pension fund backed its decision to invest with Covenant, stating that: “As core pricing has reached pre-downturn levels in certain markets, investments in value-add strategies are timely at this point in the cycle as value-add investments offer higher returns on a risk-adjusted basis.”
Fund IX will be investing in markets like Alabama, Indiana, Kentucky, South Carolina and Tennessee, which rarely attract institutional capital.
Its other target markets include Florida, Georgia, North Carolina and Virginia. The leverage component will be 65% based on the total value of the fund’s acquisitions.
The fund will target net returns of 16% to 18%.