Morgan Stanley Real Estate Investing, the real estate business of New York-based investment bank Morgan Stanley, has heavyweight state investors to thank for the continued growth of its opportunistic fund series, PERE can reveal.
Sovereign wealth fund investors China Investment Corporation of China and Future Fund of Australia are understood to have returned to the series with sizable commitments to the fund. PERE also learned that the National Pension Service of Korea committed approximately $300 million.
The bank announced a final close of $3.1 billion for the North Haven Real Estate Fund X Global (G10) last month. That total meant Morgan Stanley has continuously raised bigger funds for the series since the global financial crisis in 2008 and 2009. In 2013, MSREI raised $1.7 billion for G8 and $2.73 billion in 2017 for G9. G10 also beat its initial fundraising target of $3 billion.
More significantly, it is understood MSREI will enjoy complete discretion when deploying the capital of G10. The bank’s hauls for funds post-global financial crisis had included a mix of discretionary and non-discretionary capital via sidecar vehicles. For G10, the entire capital raise is said to have been for the main vehicle, with sidecar options yet to be determined.
The fund series was rebranded from Morgan Stanley Real Estate Funds (MSREF) following the global financial crisis. In an announcement, MSREI said 80 percent of the investors in the subsequently rebranded North Haven series had returned to commit capital to G10. Indeed, China Investment Corporation and Future Fund were cornerstone investors in MSREI’s first North Haven fund, the 2013-vintage G8, and have kept faith ever since.
Their continuous support and commitments from other investors, including NPS and US pension Maryland State Retirement and Pension System, which committed $100 million, follows strong performance by the North Haven funds, PERE understands. Indeed, each of the vehicles G7, G8 and G9 are understood to be generating net internal rates of return of 15 percent or higher – at a maximum of 65 percent loan to value, which is a lower leverage ratio than many of the series’ peer funds.
That gearing is more in line with value-add strategies than opportunistic strategies, which typical deploy leverage at a high ratio. As such, its IRRs are more notable as they were less amplified by the use of credit.
PERE has learned that one G9 investment, involving the conversions of retail assets to another use, generated a 125 percent IRR and 2.8x equity multiple. G10 is expected to be deployed via both value-add and opportunistic risk and return strategies.
In its announcement, MSREI said: “With a flexible global mandate and a patient, disciplined approach, G10 will follow a strategy that the MSREI team has successfully employed in its three predecessor global funds – G7, G8 and G9 – across which they have acquired over $17 billion of gross real estate assets in over 100 separate investments.”
MSREI added that deployment of G10’s capital is well under way. PERE understands the platform has invested between $500 million and $600 million of the capital in a mix of industrial and residential assets. It is also thought more conversions of assets will feature within future outlays for the vehicle, including offices and more retail properties.
MSREI sits within Morgan Stanley Investment Management, which currently manages more than $100 billion of assets, $52 billion of which are real assets. Within that, MSREI manages $47 billion of assets, according to its announcement.
The firm declined to comment on fundraising or performance.