Pennsylvania SERS commits $15m to BPG fund

The $25.5bn US pension has invested in BPG's latest value-added vehicle, targeting $250m. The Pennsylvania pension saw its real estate portfolio return 2.3% in 2010, and 4.5% in the fourth quarter.

The Pennsylvania State Employees’ Retirement System has committed $15 million to BPG Properties latest value-added fund.

With the $25.5 billion pension's real estate portfolio starting to rebound in value, PA SERS approved the commitment to BPG Investment Partnership IX, which is targeting $250 million and has closed on $65 million of commitments to since being launched just over a month ago, according to people familiar with the matter. The fund will target value-added debt and equity opportunities, from existing assets to mezzanine equity. A first close is expected in the second quarter.

BPG president and chief executive officer Dan DiLella (pictured) said in a fourth quarter newsletter that the private equity real estate firm currently owns and operates more than 24 million-square-feet of commercial property and roughly 19,000 multifamily apartments.

Dan DiLella

“Over the past two years, we have focused on debt reduction and extension in order to stabilise our portfolio and sold assets with measurable equity value to create liquidity for reserves and deleveraging,” DiLella said in the letter. However, he added, “after every period of darkness there is a new day [and] I believe in 2011 the economic recovery will continue to gain strength.”

The commitment was one of three PA SERS made to private equity and real estate funds, including a commitment of up to $30 million to ABRY Partners VII and up to $10 million to Guggenheim Technology Ventures II. ABRY Partners VII, which has a target of $1.6 billion, is expected to close on 29 April above target, sources added.

Announcing its fourth quarter returns, the Pennsylvania fund highlighted the performance of its real estate portfolio over the past year, which gained 2.3 percent during 2010 and 4.5 percent in the last three months of 2010. The pension's private equity portfolio outperformed all other asset classes in 2010, returning 18.3 percent for the year and 6.7 percent in the fourth quarter.

But PA SERS acting chief investment officer Thomas Brier said in a statement it was “encouraging to see the real estate asset class beginning to rebound, providing another indication that the economy may be moving toward recovery.”

The pension system's total performance for the year reached 11.9 percent, beating its 8 percent long-term assumed rate of return required to pay out benefits to members. It is the twelfth time in the last 16 years that the fund has outperformed its actuarially assumed rate of return. Total earnings for calendar year 2010, excluding fourth quarter earnings for alternatives and real estate which have not yet been reported, totaled $2.7 billion.

Zoe Hughes contributed to this article