In pursuit of high risk-adjusted returns, New Mexico State Investment Council (SIC) is investing $75m (€63.3m) in KKR’s latest real estate opportunity fund.
As reported earlier this year, KKR is planning to raise $1.5bn for KKR Real Estate Partners Americas II. New Mexico SIC suggested KKR is likely to exceed this number by the end of the year.
Vince Smith, deputy state investment officer for New Mexico SIC, said the sovereign wealth fund did not participate in the first fund, which raised $1.2bn in 2014.
“We believe [the second fund] will be producing very high risk-adjusted returns, which we have not been able to reach for the other opportunity funds in our real estate portfolio.
The fund is targeting a high-double-digit gross internal rate of return (IRR) and a mid-teens net IRR over eight years, he said.
It is also expected to diversify New Mexico SIC’s real estate portfolio by investing in senior living and healthcare assets, affordable and student housing, as well as offices.
“Except for the office buildings sector, the other three specialised property types we don’t have much exposure to, and so this fund will give us some additional diversification with our overall real estate portfolio,” he said.
Smith said KKR’s planned $200m co-investment was “significant” and “larger than we normally see from a manager”.
The fund will focus mostly on US assets, although its guidelines allow for investments in Europe and Asia-Pacific.
KKR will be investing in assets through joint venture operating partners. The fund manager will be investing capital into property-level equity, debt and special situations transactions. There are no pre-seeded assets in the fund.
The leverage component on the fund is projected to be in the range of 60% to 65%.
New Mexico SIC said it expects to invest in value-add and core funds in 2018.
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