New York State Common Retirement Fund (NYSCRF) is investing $550m (€458m) in an infrastructure fund set up by US private equity firm KKR and a real estate debt fund managed by Mesa West Capital.

The pension fund, which is seeking to ramp up its infrastructure exposure, said it is putting $400m into KKR Global Infrastructure Investors III and will for the first time invest with Mesa West, commiting $150m to the Mesa West Core Lending Fund.

As reported earlier this year, KKR plans to raise $5bn for its third global infrastructure fund.

NYSCRF said it expects the investment in the KKR fund to generate a net internal rate of return of 12% to 14%.

Infrastructure III will invest in core, income-producing infrastructure assets globally, with a focus on North America and Europe. Sectors will include social, distribution and storage, transportation and utilities.

The $192bn pension fund told IPE Real Assets that an investment in Mesa West provides a “core first-mortgage debt investment that is expected to generate returns more akin to a core real estate equity investment.”

NYSCRF said: “Given where we are in the current market cycle, the staff has been more focused on investments that are more core in nature and present limited downside risk.

“As a senior mortgage debt investment vehicle, Mesa West provides downside protection from a value decline in the equity slice of the capital stack.”

NYSCRF expects a net return in the range of 6% to 8% from the open-ended Core Lending Fund.

Core Lending Fund plans to finance US office, industrial, retail, apartments and hotel assets.

Mesa West declined a request for comment.