Why LPs like debt investments: Straight from the horse's mouth...
The Pennsylvania Public School Employees' Retirement System (PSERS) is a $70+ billion pension fund with exposure to some of the largest real estate funds. Last year, they approved this investment in a debt fund. We comb through pension fund documents regularly and PSERS is at the top of the list in terms of explaining the rationale for their investments.
IC recommendation in a nutshell...
-- We're overweight real estate credit and want to add more.
-- $175M to ACORE's latest fund targeting 13-15% IRRs
-- Unique market opportunity due to: (i) interest rate spike, (ii) property value reset, and (iii) bank pullback.
-- ACORE will invest in senior loans, pref, and mezz investments.
-- The market opportunity has led to record fundraising for debt funds, but there will still be a big funding gap.
-- Borrowers use loan proceeds to fund improvements, so ACORE's value is in sizing up asset management business plans.
Credit specialists...
"ACORE is solely focused on real estate credit, and the leadership team has been specialists in this market for 25+ years, originating and asset managing loans across cycles. Over this time, the team has developed not only credibility with borrowers for improved sourcing channels but also best-in-class asset management practices."
Downside focus...
"ACORE’s focus on preserving capital is proven by its low loss rates, which are unmatched by its peers. Defaults have occurred in the portfolio, but by promoting a culture of stringent underwriting, proactive asset management, and alignment with investors, only once has a default led to a realized loss to investors."
Preferred economics...
"IO Staff negotiated a $50M co-investment vehicle to invest alongside the Fund at preferred economics. The blended fee structure across the main fund and the co-investment vehicle reduces base management fees while allowing PSERS to retain a larger share of outperformance."
Read the full report here.
COMMENTS