The Oregon Investment Council has approved a $300 million commitment to Lone Star Funds’ Lone Star Real Estate Fund (LSREF) III on behalf of the Oregon Public Employees Retirement Fund (OPERF). The commitment increases the more than $2 billion that the pension plan has committed to Lone Star’s funds since 1995.
The Dallas-based private equity giant’s third commercial real estate vehicle will invest in distressed debt and distressed real estate, as well as banks and finance companies where real estate can be acquired on an opportunistic basis. LSREF III is expected to invest 40 percent of its capital in the US, 40 percent in Europe and 20 percent in Japan.
Board documents cited Lone Star’s global diversification and asset mix, as well as the firm’s “unique organizational capabilities which enable execution of large and often complicated transactions/loan pools” and “captive servicing programs,” as reasons for committing to the fund manager further. OPERF also described Fund III’s proposed terms as, “in aggregate, more LP friendly than most fund offerings available in the market today.”
Lone Star has become OPERF’s largest real estate investment manager, representing 8.9 percent of the pension’s total real estate program. In fact, Oregon has invested in every Lone Star fund offering since 1995, including the other two vehicles in the firm’s commercial real estate series, LSREF I and LSREF II. Most recently, OPERF committed $187 million to Lone Star Fund VIII in May.
The $62.6 billion pension plan currently allocates $7.37 billion to real estate, with a target allocation of just over $8 billion. Of its overall real estate allocation, OPERF devotes 32.8 percent to opportunistic funds, with an allowance of up to 40 percent to the sector. Although the pension plan is targeting only a 30 percent opportunistic allocation, the board justified the commitment by saying Lone Star’s “long and successful track record merits investment at this time to take advantage of current dislocations in the firm’s target markets.”
Earlier this week, Lone Star announced LSREF III’s new $6.6 billion hard cap after revealing that the fund had raised more than half of its original $6 billion target, between $3 billion and $4 billion, in just three months. During the Oregon board meeting, Lone Star also disclosed that the firm’s founder and chairman, John Grayken, will invest $330 million of his own money —or 5 percent of the vehicle’s new capital target —in LSREF III, according to a report from Bloomberg.