Follow the dollars: How pension funds invest* in real estate...
Nebraska Investment Council / Kayne Anderson example
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STEP 1: Initial meeting
-- Kayne Anderson met with our staff earlier this year to pitch their latest fund: KAREP VII, a closed-end real estate fund targeting opportunistic returns.
-- Like KA's prior fund (KAREP VI), which we invested in, this fund plans to invest in medical office, senior housing, and student housing.
-- Status update on KAREP VI investment: $50M commitment, $27M funded, 7% net IRR, 1.1x multiple.
-- Proposal: Our 2024 plan calls for $61M of additional investment to non-core real estate.
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STEP 2: Consultant diligence
Sample consultant summary:
The Townsend Group, an Aon Company ('Townsend') has reviewed and performed an in-depth analysis of the above categories which includes, but is not limited to:
-- Retention of Limited Partners
-- Institutional Investor Representation
-- Management Company Ownership
-- Consistency/ Volatility of Returns
-- Write-offs
-- Transaction Experience in Strategy
-- Organization Expenses
-- Management Fee
-- Incentive Fees/Waterfall Distribution
-- Fund Size
-- Sponsor Commitment
-- Ability to Create Value in Deals
-- Valuation Discipline
-- Reporting Transparency
-- Back-Office Resources
-- Investment Period
-- Fund Term
-- Key Person Provision
-- Turnover/Tenure
-- GP Attribution Concentration
-- Fault Provisions
-- Advisory Board
-- Priority of Distributions
-- Alignment of Partner Interest
-- Firm Leadership
In addition, Aon Investments, USA’s Operational Due Diligence team has reviewed the Firm from an operating perspective and has given Kayne Anderson a pass rating.
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STEP 3: Consultant recommendation
"In accordance with the Nebraska Investment Council (“NIC”) Annual Investment Plan, a total of $30.5 million of non‐core capital is recommended to be deployed...."
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STEP 4: Staff presentation
"The Council’s 2024 real estate pacing model recommends allocating $61 million to non-core real estate across the four plans. A commitment to KAREP VII for $30.5 million would be half of this year’s recommendation. AON has completed their review of KAREP VII and has given it a Buy rating."
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STEP 5: Board approval
"KAYNE ANDERSON REAL ESTATE PARTNERS: 10:12 a.m. to 10:47 a.m.
Mr. Hong and Ms. Winkler discussed Kayne Anderson Real Estate Partners and their people, process, and performance. Discussion followed the presentation. The motion carried."
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STEP 6: Investment
* This outlines the formal process. Informally, the consultant helps to establish the pension's policies and then picks the funds to put in front of the pension.
Ps - These presentations often come with buried nuggets. Examples from above: 1) Goldman owns 37% of Kayne Anderson, and 2) fee structure: 8% pref, 20% promote w/a catch-up.
Read the full report here.
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