Future Fund to invest $350m with Berkshire

The A$80 billion Australian state fund will invest in the Boston-based real estate manager for the first time through a large single-investor vehicle and a commitment to the firm’s latest multifamily fund, which is slated for a first close by the end of the year.

Australia’s Future Fund is investing with real estate fund manager, Berkshire Property Advisors, as the A$80 billion (€64.2 billion; $84 billion) state fund continues to expand its multifamily real estate investments in the US.

According to sources familiar with the matter, Future Fund has formed a $300 million co-investment vehicle with Berkshire to invest alongside the firm’s third multifamily fund, Berkshire Multifamily Value Fund (BMVF) III. Additionally, the Australian investor will commit $50 million to the commingled fund, for which the firm is expected to hold a first close by year’s end. Future Fund and Berkshire both declined to comment.

BMVF III will invest in various multifamily strategies, including debt, direct acquisitions, asset recapitalisations and risk-mitigated developments in select metropolitan areas across the US, according to a document from the New Mexico State Investment Council. Two unnamed sovereign wealth funds and six other investors were identified as limited partners in the first close, which is expected to total some $140 million in commitments. The co-investment vehicle is expected to have a similar strategy.

Prior to its current offering, Berkshire raised the $1.2 billion Berkshire Multifamily Value Fund in 2005 and the $2 billion Berkshire Multifamily Value Fund II in 2007. It also formed Berkshire Income Realty, an $800 million publicly-traded real estate investment trust, in 2003. It seeks to generate value-added returns by targeting assets or portfolios of assets that are mismanaged, in need of rehabilitation or redevelopment or that can be acquired at a deep discount from lenders or sellers.

The commitment to Berkshire represents Future Fund’s latest real estate investments in the US, as well as an expansion of its multifamily portfolio in the country. The state fund was an early investor in Brookfield Asset Management and Fairfield Residential’s Brookfield Fairfield US Multifamily Value Add Fund, which held a final close on $323 million in commitments earlier this year. It also has backed Brookfield in a number of other US investments, including the recapitalisation of General Growth Properties in 2010 and a $1 billion industrial joint venture with Hillwood, which was announced in March.

Future Fund primarily invests in real estate through discretionary mandates with managers, although it occasionally makes direct investments. “We prefer mandates, joint ventures, syndicates and smaller clubs where the investors have some influence, compared to larger discretionary funds,” the investor stated in its 2011-2012 annual report. At the time, the state fund had invested with 13 real estate managers across 22 portfolios, including Henderson Global Investors, MGPA and TIAA-CREF, the report noted.

Established in 2006 to assist the Australian government in meeting the cost of public sector superannuation liabilities, Future Fund held A$5.2 billion, or 6.4 percent of its total assets, in real estate as of 30 September, according to the most recent portfolio update on its website.  About 41 percent of that portfolio was invested in North America.