The Orange County Employees Retirement System (OCERS) has committed $125 million to two new debt fund managers, $50 million more than it had originally planned to invest in the space.
The $11 billion pension plan approved a staff recommendation to commit $75 million to Oaktree Capital Management’s Oaktree Real Estate Debt Fund and $50 million to True North Management Group’s True North Real Estate Fund III.
At its October 30 investment committee meeting, Santa Ana, California-based OCERS approved its portfolio for a $75 million investment to a commingled US real estate debt fund. In its reasons for considering a debt fund, OCERS’ consultant RV Kuhns & Associates noted that debt provides “attractive risk-adjusted returns with a significant portion of the return coming from current cash yields while limiting potential downside risk, versus exposure to real estate equity investments that reside in a ‘first loss’ position.”
Oaktree and True North were chosen from a list of five funds under consideration. The shortlist also included Colony Capital’s Distressed Credit and Special Situations Fund III, Mesa West Capital’s Core Lending Fund and Square Mile Capital Management’s Square Mile Credit Partners.
The new commitments will serve as a part of OCERS’ non-core real estate allocation. In September, the pension earmarked an additional $200 million for non-core real estate commitments, which is scheduled to be invested over the next three years. Non-core real estate investments currently make up 15.04 percent of its real estate portfolio, but the pension system has a long-term target of up to 30 percent. Prior to the Oaktree and True North commitments, only 1.7 percent of the pension plan’s investment portfolio was in the real estate debt space.