Teachers’ Retirement System of Louisiana (TRSL) is preparing to take advantage of distress of in the securitised real estate debt markets.

The pension fund has earmarked $100m (€88.8m) for investments in commercial mortgage-backed securities (CMBS) to be managed by Principal Real Estate Investors, according to a board meeting report.

The new separate account will be allocated $50m at the outset and a further $50m will be made available if the spread between CMBS yields and government bonds widens.

According to TRSL’s investment consultant, Aon, the spreads have narrowed from their peak at the end of March. Spreads on A-rated CMBS decreased from 700bps at the end of March to 400bps by 23 June, while spreads on BBB-rated CMBS decreased from 1300bps to 700bps.

But Aon says there could be a second wave of forced selling, which could create more opportunities should delinquencies and defaults increase and bonds are downgraded.

The account will enable TRSL to ramp up its exposure to CMBS when opportunities look favourable and scale back when the market looks less appealing.

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