Investors - JULY 11, 2014

Illinois commits $60m to real estate, $125m to infrastructure

by Reg Clodfelter

The Illinois State Board of Investment has committed $30 million each to Ares European Real Estate Fund IV and Oaktree Real Estate Debt Fund, as well as $125 million to IFM Global Infrastructure Fund, according to William Atwood, executive director with the board. These investments are ISBI’s first foray with each manager outside of an investment with Oaktree in ISBI’s private equity portfolio.

AEREF IV, managed by Ares Management, is a $1 billion opportunistic fund that launched in January 2012. The fund had raised $556.5 million as of July 8.

AEREF IV will focus on large and highly liquid European markets, targeting retail, office, residential and industrial assets that could produce substantial market liquidity at exit. The fund will use intensive asset management and capital injection to manufacture core assets out of distressed properties as well as fix broken capital and ownership structures. The fund is expected to produce 12 percent to 16 percent net IRR over a three- to five-year holding period.

According to Atwood, ISBI does have some non-U.S. exposure in its real estate portfolio, but the board of investment is currently looking to expand its global portfolio.

Oaktree Capital’s Real Estate Debt Fund launched in April 2013 with a $700 million fundraising hard cap and had raised $678 million after a year of marketing. The fund invests in CMBS, first mortgages, subordinated secured debt, mezzanine debt and corporate debt in the United States and targets a levered gross return of 12 percent.

IFM Investor’s GIF is an open-end infrastructure fund that launched in January 2010. The fund targets core-like infrastructure assets globally, with a specific focus on developed markets around the world, including Australia, Europe and the United States.

ISBI, which manages $15.0 billion in assets for the state of Illinois, has a 5 percent target to its real assets bucket, most of which comprises infrastructure investments. Its actual allocation is at 3.7 percent, and, to this end, Atwood anticipates further real assets investments over the coming year. The board is currently right at its 10 percent target allocation to real estate.

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