The New Mexico State Investment Council selected two of its existing real estate managers for the sovereign wealth fund’s latest round of commitments, according to materials from its Tuesday meeting.
NMSIC wrote a $100 million check to Pacific Investment Management Company for PIMCO Bank Recapitalization and Value Opportunities Fund III. The SWF invested the same amount in the firm’s predecessor vehicle, which closed in 2013 on $5.5 billion. Newport Beach, California-based PIMCO is targeting between $3 billion and $4 billion for the third fund with a $5 billion hard-cap.
The firm held a first close for BRAVO III in November on $820 million and had raised $1.2 billion as of December 30, according to NMSIC meeting materials. With capital from the fund, the firm plans to invest in private and public debt and equity. About 40 percent of the portfolio will be in residential lending and land; 40 percent in commercial loans and direct real estate; 10 percent in specialty finance; and 10 percent in other opportunities, including distressed credit.
PIMCO is targeting a 14-16 percent net internal rate of return and a 1.7x–1.9x multiple for its third fund. NMSIC’s investment in BRAVO II had generated an 11.9 percent IRR as of December 31.
PIMCO had invested 10 percent of BRAVO III’s capital as of December 31. Other investors in the fund include the Teachers’ Retirement System of the State of Illinois, which earmarked $100 million, and the Arkansas Local Police and Fire Retirement System, which committed $10 million, according to PERE data.
In NMSIC’s other February real estate commitment, the fund allocated $62 million to Exeter Property Group for the Conshohocken, Pennsylvania-based firm’s latest value-added vehicle. The firm, which manages $4.7 billion in assets, has closed on $900 million against a $1.3 billion target for Exeter Industrial Fund IV. NMSIC invested $35 million in the firm’s predecessor vehicle, which is fully invested and generated a 14.7 percent net IRR as of September 30, according to the pension.
With capital from the fourth fund, Exeter is planning to buy warehouse and light industrial real estate assets across 20-30 distribution centers. The firm is targeting a 13-15 percent net IRR with a 1.8x net multiple.
The Townsend Group, NMSIC’s real estate consultant, recommended the fund because of PIMCO's track record and existing relationship, as well as NMSIC’s focus on investing in core-plus and value-added strategies as it winds down its legacy investments in these risk categories.
Other investors in Exeter’s fourth fund include Pennsylvania Public School Employees’ Retirement System and the New York State Teachers’ Retirement System, which each allocated $100 million, and Texas Permanent School Fund, which earmarked $75 million, according to PERE data.
NMSIC also released its latest performance data for real estate. The asset class generated net time-weighted returns of 12.4 percent, 14.4 percent and 14 percent for the one-year, three-year and five-year periods ending September 30, outperforming the NFI-ODCE benchmark by 330, 300 and 260 basis points over the respective time periods. The third quarter marked the first quarter that the fund’s real estate portfolio outperformed its benchmark over a five-year period.
NMSIC had $1.7 billion invested in real estate, or 8.9 percent of its total portfolio, as of the end of the third quarter. Its target allocation to real estate is 10 percent of the portfolio.