PGIM Real Estate is seeking to raise $2bn (€1.63bn) over the next three years for its new open-ended real estate debt fund, according to one of its investors.

The Stanislaus County Employees’ Retirement Association (StanCERA) is committing $54m to the PGIM Real Estate US Debt fund, a board meeting report shows.

PGIM declined to comment.

In the report, investment consultant Verus Investments said real estate debt should be considered as a possible substitute for core real estate, given the similar risk-return characteristics and current market conditions.

It said the fund will be investing in senior and subordinated loans secured against institutional real estate with strong fundamentals and predictable income streams.

The fund is targeting a gross internal rate of return of 7-8%.

StanCERA is funding its commitment by gradually reducing its allocation to public real estate investment trusts (REITs). Its REIT portfolio, managed by BlackRock, was valued at $106m at the end of January 2018.

According to Verus, the pension fund would be better served to achieve real estate exposure in the private markets because REITs have a moderately high correlation with small-cap equities.

StanCERA also has plans to reinvest REIT sales into core and value-added real estate.

It is investing $35m in the Morgan Stanley Prime Property Fund, a core property fund in which the pension fund already has $18.4m invested.

It will also invest in two value-added funds, committing $28m to the American Strategic Value Fund, managed by American Realty Advisors, and $40m to Greenfield GAP VIII.