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New Jersey may change mind on Morgan Stanley commitment

The $63.9bn US pension fund said it was planning to pull back on a proposed $150m commitment to Morgan Stanley’s $10bn global fund, blaming declining property prices and increasing debt opportunities. The fund is also looking to withhold a $100m planned commitment to an AEW open-ended fund.

The New Jersey Division of Investment is planning to withhold a proposed $150 million commitment to Morgan Stanley’s latest global real estate vehicle, Morgan Stanley Real Estate Fund VII Global.

New Jersey said it was planning not close on the investment owing to declining real estate prices and increasing opportunities in the property debt market, according to documents from the pension fund’s board meeting yesterday.

The pension, which saw the value of its total assets under management fall almost $17 billion in 2008 to $63.9 billion, said it had changed its mind because “current appraised values for real estate” were lagging actual market prices at a time when more “attractive real estate debt-related opportunities” were expected to emerge in 2009.

The fund said it was also planning to hold back on a proposed $100 million commitment to AEW’s open-ended fund, the AEW Core Property Trust, after originally outlining a commitment in December 2007. The pension originally said it was planning to commit to Morgan Stanley in June 2008.

The board documents went on to state that MSREF VII Global was an opportunistic fund with “pre-specified assets.” New Jersey was unavailable for comment by press time. Morgan Stanley declined to comment.

Previous New Jersey fund documents said that Morgan Stanley was targeting up to $12 billion with the global fund, which would focus on “large, wholly or majority owned positions.”

The vehicle would also look at distressed opportunities and investments in emerging markets, with expected IRRs of more than 20 percent. Geographically, investments would be split equally between the US, Asia (with a focus on Japan), Western Europe (with a focus on Germany) and the emerging markets (with a focus on China).

In November, PERE revealed MSREF VII Global had raised $6 billion of its original $10 billion to $12 billion target, with another $2 billion soft circled.

However, investors had been told by the firm it was deferring final close of the fund until the first quarter of 2009 after LPs asked for more time. Morgan Stanley’s predecessor fund, MSREF VI International, raised $8 billion in June 2007.

The final close had been expected in September 2008, according to public minutes of the Contra Costa County Employees’ Retirement Association.