NORTH AMERICA – The Orange County Employees Retirement System has approved a commingled fund manager search for real estate debt.
The amount of capital under consideration for the search is $75m (€55.4m).
The pension fund will be working on the manager search along with its real estate consultant, RV Kuhns & Associates.
Shanta Chary, director of investment operations at Orange County, wrote in a board meeting document that RVK believes a tactical opportunity exists to invest in real estate debt.
It believes this strategy can provide attractive risk-adjusted returns with a significant portion of the return coming from current cash yields.
This can limit potential downside risk, versus exposure to real estate equity investments that reside in a “first loss” position.
Orange County has set up several requirements for mangers to be considered for the search.
Candidates must have at least $250m in total US real estate and/or real estate debt assets under management, and at least five years of performance history managing similar assets.
The commingled fund should be large enough that the pension fund would not have more than 20% ownership of the total fund.
RV Kuhn’s current universe of real estate debt funds under consideration include Colony Distressed Credit and Special Situations Fund III, Mesa West Core Lending Fund, Oaktree Real Estate Debt Fund, Square Mile Credit Partners and True North Real Estate Fund III.
Other commingled funds will be considered for the search.
Orange County is looking for a commingled fund that invests in debt through first mortgages made on institutional-quality real estate, CMBS, mezzanine loans, preferred equity or B-notes secured by high-quality real estate.
Property types include multifamily, hotel, industrial, office, retail and self-storage assets.
In other news, the San Diego City Employees’ Retirement System, at its 7 November investment committee meeting, will be discussing the possibility of allocating $190m to real estate over the next three years.
The pension fund’s real estate consultant, Hewitt EnnisKnupp, feels the pension fund need to do this to keep pace with its 11% targeted allocation for real estate over the long term.
San Diego City has $100m of unfunded commitments to real estate.
In general, the drawdowns of the current commitments, which are expected to occur over several vintage years, will largely be offset by distributions from legacy non-core investments in the liquidation stage.
This will result in the portfolio returning to its unfunded status in the long run.
The pension fund is looking to invest in a combination of core and non-core strategies.
For the 2014 fiscal year, this will be $30m in core and $40m in non-core.