UNITED STATES - Teacher Retirement System of Texas has formed Lionstone Cash Flow Real Estate Partners One, a fund managed by Houston-based The Lionstone Group.

The majority of the venture will be owned by Texas Teachers, which has agreed to invest $250m (€183m) of equity.

The pension fund will have discretion on how long the investment fund lasts and is seeking gross internal rate of return of 12%. The investment period is three years, although Texas Teacher may hold on to assets for the long term.

The fund will invest in core properties in the US, using 50% leverage to increase investment volume to approximately £500m.

The favoured property sectors are office, industrial, retail and apartments, and Lionstone, which has full investment discretion, will be able to screen for opportunities across the country.

Glenn Lowenstein, partner at Lionstone, said: "We think in this economy you need to have diversification and that is why in the fund with Texas we are going to be investing in several property types."

Lionstone has a history investing with large pension funds in the US, including an existing separate account relationship with The Oregon Public Employees Retirement Fund to buy office buildings across the country.