New York pension scheme commits $200m to PGIM’s high-yield European debt fund

PGIM Real Estate’s latest European high-yield real estate debt fund has attracted a $200 million (circa €188 million) commitment from one of the largest pension funds in the US.

The New York State Common Retirement Fund said in a monthly transaction report that it has made the commitment to Pramerica Real Estate Capital VI LP (PRECap VI), a closed-ended real estate debt fund focussed on western European markets.

“The strategy of the fund is to build a diverse mezzanine debt and preferred equity portfolio in Western Europe with a specific focus on the United Kingdom and Germany,” the pension fund said in a statement. The investment closed in October and was funded from short-term cash, it added.

PRECap VI will be the largest fund raised by the high-yield debt team at PGIM Real Estate, led by Andrew Radkiewicz and Andrew Macland. The firm is targeting £1 billion of capital and a 12 percent net IRR, 6 percent of it coupon-based, according to the pitch book shown to prospective investors.

Aside from New York Common, the fund has received commitments from a range of PGIM’s US pension plan clients, including Pennsylvania PSERS, New Mexico SIC and Texas Teachers. PGIM is co-investing $50 million.

Fund VI will invest in Western Europe with at least 70 percent of deals in the UK and Germany and up to 30 percent potentially available for other markets. Target sectors are office, retail, industrial and residential with up to 15 percent possible in others such as hotels or healthcare. The fund originates mezzanine and preferred equity and structured loans such as whole loans where the senior piece will be syndicated.

Speaking to Real Estate Capital in July, Eric Adler, CEO of PGIM Real Estate, said high yield debt is a product that has more in common with equity investing, which was why it made sense to add it to the company’s equity real estate business. “The approach we take to underwriting an equity piece or a high-yield debt piece is very similar. And our clients look at it as an interesting, downside-protected way of accessing real estate and getting equity-like returns, which happens to take the form of debt.”

PGIM Real Estate, the former Pramerica and Prudential Real Estate Investors, is part of PGIM, the international investment management business managing $947 billion of capital which owned by US firm Prudential Financial.

PGIM, which rebranded this year, was formerly called Prudential Investment Management in America, and Pramerica Investment Management elsewhere.

New York State Common Retirement Fund is the third largest pension fund in the US. New York State has $178.6 billion in assets held in trust for pension benefits.