Teacher Retirement System of Texas increased its exposure to distressed and value-added real estate by $500m (€364m) last month.
The pension fund made respective commitments of $300m and $200m to Lone Star’s distress-chasing Fund IX and Fudo Capital’s value-added Fund III.
Lone Star is looking at a total capital raise for Fund IX of $7bn, with a first close projected at $5bn. The fund manager will co-invest in the fund with a 1% capital commitment. A net 20% IRR and 25% gross IRR are targeted for the fund.
With a distressed strategy in both loans and securities, around half of the fund’s capital will invest in Europe, according to industry sources. Spain, Italy and France are the main focus for the fund. The UK and Ireland, are not, however, on the fund’s radar, while around 40% of investments will be made in the US and 10% in Japan. Single-family residential, corporate and consumer debt products, as well as asset-rich operating companies are among the sectors being targeted by the fund.
The commitment for Fund IX is Texas Teachers’s third with Lone Star, following two $300m commitments in 2013 and 2010 to Lone Star’s Real Estate Fund III and Fund II.
The pan-Asian, value-added Fudo Fund III will invest across the office, industrial and retail sectors, as well as mixed-use.
Fudo Capital, active in Japan, China, Australia, Hong Kong, Singapore, South Korea and Taiwan, invests in properties – including assets requiring renovation – in the $25m to $75m bracket.
Texas Teachers considers the investment as a follow-on commitment, having put $150m into Fudo’s Fund II in 2009.