The New Jersey State Investment Council approved £200 million (€237.14 million; $304.16 million) across two commitments to M&G Real Estate Debt Fund II and M&G Real Estate Debt Fund III at its meeting yesterday.
The Prudential subsidiary is targeting £750 million for both vehicles. New Jersey will likely commit £75 million to Fund II and £125 million to Fund III. Investment staff will finalise the commitment pending legal due diligence.
The M&G funds will provide a risk-adjusted substitute for lower yielding fixed income investments, according to New Jersey State Investment Council documents, which also cite the dwindling availability of traditional financing for European real estate markets as one reason for the commitments.
“M&G Investment Management, together with its senior first mortgage lending affiliates, is one of the few providers of whole-loans in the European market,” according to New Jersey documents. “By providing underwriting and supplying an entire debt structure, M&G reduces complexity and costs for borrowers, making them an attractive capital source.”
The documents also cite M&G’s superior sourcing capabilities in Europe through its parent company.
“The loans are typically allocated into 3 specific buckets: a senior tranche for M&G’s parent company insurance fund balance sheet and third party clients (Libor+ 200 – 300 targeted returns), a senior subordinated or “stretch senior” tranche for Fund III (7 – 10% targeted returns) and a mezzanine tranche for Fund II (12 – 15% targeted returns),” according to SIC meeting materials.
New Jersey will pay a 0.70 percent management fee for its investment in Fund III and 1.25 percent for its investment to Fund II, according to documents, which describe the terms as “substantially better than market and also better than the terms offered to other smaller investors in the M&G funds”.
John Barakat, Jamil Farooqi, Peter Foldvari and Daniel Riches are listed as key investment professionals on the vehicles.
In addition to its pending commitments to M&G, the SIC also approved a €75 million allocation to Perella Weinberg, $100 million each to Jana Strategic Investments and JSI Co-investments, as well as a $100 million commitment to Marlin Equity Partners.
The $72.76 billion New Jersey Division of Investment had a 1.07 percent allocation to debt related private equity and a 2.75 percent allocation to credit related hedge funds as of 28 February, according to documents. It also had a 5 percent allocation to real estate at that time.