REAL ESTATE- The Pennsylvania State Employees Retirement System has decided to invest $25m into the Prudential Latin America Retail Fund and $75m into the Hawkeye Partners Scout Fund.
Neither of these investments are typical of investment funds that pension funds allocate capital to. This should come as a complete surprise as the pension fund does have a history of investing some capital into new areas. The fund was one of the first institutional investors to place capital into senior housing.
Pennsylvania State Employees made the investment decisions as its board meeting last month. It was assisted in its action by its real estate consultant, The Townsend Group. The person working on this account for the company is Principal Rob Kochis.
He said: “The Prudential fund is a niche strategy that allows our client to invest equity into some new retail development opportunities near Mexico City.
“We think that there is some growth happening in the country with its middle class. We think that the region as a whole is under retailed. Pramerica does have an established investment platform in Mexico that can make this happen.”
The manager of this commingled fund is Pramerica Real Estate Investors. It’s hoping for a total equity raise of $300m. Investors are projected to achieve a net IRR of 20%. This yield assumes a seven- to 10-year holding period.
The kind of retail developments in the fund will be properties that might be anchored by a tenant that is similar to a Kmart super store. Most of the properties in the fund will be located in the suburbs of Mexico City. With leverage, the commingled fund will have a total capitalization of around $1bn.
The Scout Fund offers a unique kind of investment strategy. Kochis said: “This commingled fund will marry some blue chip institutional investors with some emerging managers trying to get into the investment advisory business. We like that our client will get the access to deal flow of these new managers and participate in the sharing of the profits with these companies.”
The Scout Fund will be looking to sign up six to eight emerging managers for the fund. These will be two kinds of firms. One would be developers who are now trying to attract institutional capital for the first time. The other are people who have been in the pension fund advisory business with a large manager and are now trying to get out on their own with a new company.
The Scout Fund will participate in the profits of the new manager up to as much as 35%. The goal for the commingled fund is to have its first manager signed up for the program in June. The fund manager for the Scout Fund is Dallas-based Hawkeye Partners. IRR returns for the fund will be in the 12% to 15% range. The total equity raise for the fund is $600mn.