San Francisco Employees commits to Fortress Japan fund

The San Francisco Employees' Retirement System (SFERS) has approved a commitment to Fortress Investment Group’s latest Japan real estate opportunistic fund.

Robert Shaw, acting deputy director for investments at the $15 billion pension system, told PERE that SFERS had pledged $25 million to Fortress Japan Opportunity Fund II, a commingled vehicle targeting $1 billion in equity commitments, at its board meeting on 14 March. Fortress’ fund, which has a hard cap of $1.6 billion, will seek distressed debt with the potential of ownership on commercial real estate across Japan. 

The fund is targeting net IRRs of 15 to 16 percent. Fortress Japan II held an initial close of $550 million in December 2011 and is anticipated to hold a second close within the month. A final close with an additional $750 million in commitments is expected this December.  

“From a real estate planned perspective, we our reducing our allocation to core and placing greater emphasis on opportunistic, which is exactly what this Fortress fund is all about,” said Shaw. “It’s investing in underperforming debt in a debt-to-own strategy.” This marks SFERS’ first commitment to Fortress. 

The commitment from SFERS follows the Ohio Police & Fire Pension Fund committing up to $30 million to Fortress’ Japan Opportunity Fund II. Fortress’ first vehicle in the series, Japan Opportunity Fund I, closed on $800 million in 2010. It is currently targeting net IRRs in the low-to mid-20s, according to Shaw. 

SFERS has $1.4 billion invested in real estate, or roughly 9.5 percent of the plan’s total assets, slightly below its 12 percent target allocation for real estate.