The Oregon Investment Council has written a $250 million check to Morgan Stanley Real Estate Investment for the Oregon Public Employees’ Retirement System’s real estate portfolio, according to materials from its Wednesday meeting.
OIC, along with its consultant, the Pension Consulting Alliance, evaluated all the funds in NCREIF Fund Index – Open End Diversified Core Equity (NFI-ODCE), the industry’s open-ended fund index, before choosing MSREI’s Prime Performance Fund in its first commitment to the New York-based manager.
PPF is the fourth-largest ODCE fund, at $17.5 billion net asset value. With capital from the vehicle, the firm focuses on buying high-quality office buildings, Class A multifamily, logistics real estate and top-tier regional malls. The firm can also deploy up to 15 percent of the fund’s capital into non-core assets, including development, and as of the third quarter, PPF had 8.8 percent of its assets in non-core real estate.
The vehicle also has two management platforms, AMLI Residential and Safeguard Storage. The former, a multifamily platform, makes up about 25 percent of PPF’s assets, while the latter, self-storage, accounts for about 5 percent.
PPF has outperformed the NFI-ODCE Index since the its inception in 1978. In 2016, the index had an 8.7 percent return, according to its website. Unlike other ODCE funds, PPF charges a flat asset management fee on net asset value regardless of commitment size and has a capped incentive fee based on improving net operating income.
“As an open-ended investment vehicle focused on long-term growth and deriving the majority of its returns from recurring income, a commitment to PPF is strategically aligned with broader objectives established for the OPERF real estate portfolio, namely reduced return volatility and the pursuit of high quality, inflation-protected income streams,” OIC wrote in its meeting materials.
In its December meeting, the OIC committed $300 million to another core open-ended fund, JPMorgan’s Strategic Property Fund, PERE previously reported. At the time, the vehicle had $31 billion in NAV.
Both SPF and PPF invest in larger properties, which OIC highlighted as a positive because OPERF’s separate real estate accounts lack the scale to invest in large-scale assets. Neither firm used a placement agent with the pension system.
OPERF had $8.7 billion invested in real estate and $69.9 billion overall as of December 31, according to its most recent quarterly returns. Real estate returned 6.6 percent for the year, compared with the overall portfolio’s 6.9 percent return.