Posted on 09/15/2007 9:22:39 AM PDT by DeaconBenjamin
The Arkansas Teacher Retirement System will place $ 55 million in a fund that invests in commercial real estate debt, the system’s trustees decided Thursday.
It’s the ING Debt Opportunity Fund II managed by ING Clarion Capital of New York.
With a targeted annual return of 15 percent, the fund is expected to total roughly $ 750 million, said investment analyst Christian Reel of the system’s Chicago-based investment consultant, Ennis Knupp & Associates.
The system will pay a 1.5 percent annual fee on the $ 55 million investment and then pay a performance incentive fee of 20 percent of the returns exceeding 9 percent, Reel said.
Paul Doane, the system’s executive director, said the ING fund will make investments in pooled or securitized mortgages on commercial real estate properties in the United States.
A previous ING fund totaled $ 500 million and produced returns exceeding 20 percent a year, he said.
The timing of this investment is “very good,” Doane said.
“The current and recent turmoil impacting sub-prime credit markets in this country has resulted in a widening of interest rate spreads that have provided enhanced opportunity for closely scrutinized mortgages,” he said in a memo to the system’s trustees.
“The havoc in the residential markets has only improved pricing (and thus projected higher returns) of mortgages in commercial real estate, where conditions remain solid,” Doane said.
The system will be investing in this fund along with eight to 10 other public and corporate pension systems, and senior members of the ING real estate group, he said.
In a related development, the trustees’ Investment Committee learned that the system’s investments totaled $ 11. 433 billion as of Aug. 31.
At the end of June, they were valued at $ 11. 509 billion, according to Knupp.
But Knupp officials said the August figure only reflected changes in the value of stock market and bond investments because values for the other investments weren’t available yet.
The committee recommended that the trustees hire Franklin Park Associates of Bala Cynwyd, Pa., as the system’s private equity investment consultant.
In August, the committee recommended that the trustees increase the system’s private-equity investments from 6 percent of the value of the system’s investments to 10 percent.
Doane said Franklin Park showed “greater commitment and eagerness” to serve the system than another consultant, Hamilton Lane of Bala Cynwyd, Pa., and Franklin Park’s fee is about half of Hamilton Lane’s $ 1. 5 million fee.
A previous ING fund totaled $ 500 million and produced returns exceeding 20 percent a year, he said.
Like the returns in the dot.com bubble before it burst!
“The havoc in the residential markets has only improved pricing (and thus projected higher returns) of mortgages in commercial real estate, where conditions remain solid,” Doane said.
Here are articles from the International Herald Tribune, Chicago Tribune, and Seattle Times:
Subprime ripple effect hits retail real estate
Commercial real-estate prices expected to drop
But Knupp officials said the August figure only reflected changes in the value of stock market and bond investments because values for the other investments weren’t available yet.
What other investments? Why aren't they described? Lottery tickets, perhaps?
Can I get an Arkansas ping?
Why don't the teachers belong to a Ponzi scheme like Social Security as do the rest of us.
Buy at the sound of cannons; sell at the sound of trumpets.
-ccm
Commercial realestate is a ponzi scheme writ large.
It is well for an individual to determine their risk preference and invest accordingly. It is inappropriate for a pension fund, which holds its assets in trust, to make large speculative investments in hope of big gains. And, as we have seen, assurances by the ratings firms that investments are AAA are not worth the paper they are written on.
We’re talking about less than half of one percent of their portfolio. You would be doing your clients a disservice if you didn’t take any risk or mirrored the wonderful return we all get from social security. This sounds like a fairly sound position, especially given the low dollar amount relative to their total funds.
Arkansas Ping
Thank you.
Texas is the only state I know of where teachers are not required to also be in the Social Security. There, it is an irrevocable decision - either in or out.
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