Oregon pension creates unique account with Prologis

Oregon’s public employee pension plan has made its first commitment to a unique account with Prologis that will invest in several of the firm’s real estate funds over the next three years.

The Oregon Investment Council (OIC) has made an initial commitment to a uniquely structured account with industrial developer Prologis. At its July 27 meeting, the OIC’s board agreed to commit $100 million to the firm’s open-ended Europe Logistics Fund, increasing the staff’s original recommendation for a $75 million commitment.

The investment is part of a $500 million allocation to the Prologis-OPERF Global Industrial Venture. That venture, structured as a feeder account, will enable the Oregon Public Employees’ Retirement Fund (OPERF) to invest in industrial real estate through existing Prologis funds.

The feeder account will be the mechanism through which OPERF will receive a global discount on management fees, consolidated reporting and investor communications. OPERF will have the discretion to determine if and how much it will invest in certain Prologis funds, which under no circumstances will account for more than 20 percent of the aggregate capital commitments to any single fund or more than $100 million to any one fund. The structure is unusual for a public pension fund, which typical invests in real estate through commingled funds, separate accounts or directly.

“Industrial real estate is seen as a prudent diversification of the Oregon real estate portfolio,” a spokesman for the Oregon State Treasury said. OPERF’s real estate portfolio had 10 percent exposure to industrial assets as of 31 December, which was underweight to the NCREIF benchmark of 14 percent, according to documents posted on the OIC’s website.

In addition, the new venture will focus on value-added properties, which “will be beneficial for achieving target portfolio balance,” according to OIC documents. Currently, 12.2 percent of OPERF’s real estate portfolio is allocated in value-added assets, compared to a target of 20 percent. As such, the venture is targeting IRRs of 10 percent to 15 percent.

Furthermore, the investment will diversity OPERF’s geographic exposure to Europe and Asia, which each accounted for 13 percent of its real estate portfolio at the end of last year.

The remaining $400 million of the overall allocation will be invested over a three-year period from the first quarter of 2012 through 2015, with each commitment ranging from $50 million to $100 million. Potential future investments may target investments in Brazil, Japan, Canada, China, the US and Mexico.

Additional investment offerings, such as potential co-investment opportunities, are anticipated as Prologis further consolidates in the wake of the former ProLogis' merger with AMB Property in June, particularly in the US, China, Europe, Korea and Mexico markets.

Prologis currently has $44 billion in assets under management and owns or has interests in more than 600 million square feet of distribution facilities in 22 countries.