Despite Strong Returns, New Mexico Exits Core Real Estate Strategy

Pension cites Berkshire’s lack of ability to ‘scale up going forward.’

The New Mexico State Investment Council (SIC) withdrew from one of its eight core real estate funds, redeeming its exposure to Berkshire’s open-ended real estate fund during its recent board meeting, citing unwariness on the account’s future potential.

The Berkshire Multifamily Income Realty Fund (BMF) launched in 2015 as a core-plus real estate fund focused on acquiring recently built multifamily assets within prime submarkets across the United States located nearby office and retail investments.

The SIC had concerns “about the fund’s ability to continue scale up going forward,” a spokesperson for the organization told CIO. “We like the manager and the returns for the fund were positive, but we decided to go in a different direction.”

The evergreen fund raised $525 million by the end of September 2018, according to an SEC filing. The GP lowered the minimum commitment size to the fund from $5 million to $1 million between 2017 and 2018.

The investment committee approved the withdrawal of the council’s $75 million commitment to the fund, which was approved in September 2015. As of September 30, 2018, the SIC’s net asset value (NAV) in the BMF was $98.9 million and represented 4.8% of New Mexico fund’s total real estate portfolio, according to a report. The fund had distributed $6.99 million to the SIC since its commitment.

The fund had a since-inception internal rate of return (IRR) of 10.3% and x1.3 equity, the spokesperson added.

The remainder of the SIC’s core real estate portfolio remains well diversified manager-wise, with seven other strategies managed by Heitman, Invesco, Jamestown, Lion, PRISA, UBS, and USAA.

During the meeting, the SIC also made substantial commitments to other private equity and infrastructure strategies. The council voted to approve a $100 million commitment to Brookfield Infrastructure IV (BIF IV), and an equal amount to TA XIII, a global growth equity fund focused on the middle market.

The allocation to Brookfield Infrastructure IV is the third commitment from the SIC to the asset manager’s relatively successful core infrastructure fund series. It previously committed $100 million to BIF II and $75 million to BIF III. The SIC has a $200 million to $250 million annual pacing plan for its real assets portfolio, the spokesperson added, “but is opportunity-driven and could be changing [in the near future].”

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