UNITED STATES - US pension funds are considering placing real estate capital into debt strategies on the back of recent market turbulence.

Orange County Employees Retirement System and New Jersey Division of Investment are both thinking of making distressed debt allocations.

While these strategies are not always associated with real estate, Lorelei Chao, the Orange County pension fund's investment officer, believes this is a good time to invest assets for either its real estate or fixed income allocations, so a decision will be made at the pension fund's October board meeting.

"We think that there could be some interesting investment opportunities in the market, given the dislocation that is now going on in the debt markets," said Chao.

The State of New Jersey has now approved a $100m (€71m) commitment into the Guggenheim Structured Real Estate Fund III, whose strategy is to invest between $650m and $1bn in distressed debt.

New Jersey has been investing in real estate debt markets since 2004 through two other commingled funds and has so far suffered no delinquencies or losses.

Its latest investment is expected to achieve a leveraged IRR of 12-13% through commercial real estate debt investments related to office, industrial, retail and apartment properties.


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