The Orange County Employees Retirement System has hired two commingled fund debt managers for a $125m (€92m) allocation.

The pension fund invested $75m into the Oaktree Real Estate Debt Fund and $50m into True North Real Estate Fund II.

It made the commitments based on the recommendation of its real estate consultant, RV Kuhns & Associates

In a board-meeting document, the consultant cited a tactical opportunity in real estate debt. 

It said this could provide attractive risk-adjusted returns, with a significant portion of the return coming from current cash yields while limiting potential downside risk. 

This is versus the exposure to real estate equity investments that reside in a “first loss” position, it said.

Oaktree Capital Management is looking at a total capital raise between $750m and $1bn. 

The real estate manager will be making a co-investment into the commingled fund of 2.5% of committed capital, with a maximum of $100m.

The targeted return for the fund is 12% gross leveraged IRR and 10% net, with a current income yield target of 6-7% on an annual basis.

The fund will be investing in a variety of debt strategies including CMBS, mezzanine, first mortgages and residential loan pools.

True North Capital Management has a target capital raise of $650m for Fund II. 

The general partner’s co-invest represents 1% of the fund, which will seek to capitalise on the over-leveraged capital structures from the previous investment cycle. 

This will be accomplished by investing in distressed debt, opportunistic equity and rescue capital in the form of debt, preferred equity or direct equity.

The targeted returns for Fund II are a 20% gross IRR and 1.8x equity multiple on invested capital.

In other news, Cook County (Illinois) Pension Fund has approved a new real estate manager search. 

It will be looking to hire emerging managers for either a non-core or REIT investment strategy in the US. 

The search will be conducted along with its real estate consultant, Callan Associates.

The amount of capital allocated for the search is up to $100m. 

The pension fund has not yet determined how many managers it will hire. 

Any responses to the RFP must be submitted by 7 March.

Cook County’s move is part of an increase in its targeted allocation for the asset class, from 5% to 8%, in 2011. 

The investor has total plan assets of $8.7bn as of the end of 2013.