The Employees Retirement System of Texas (ERS), one of the largest pension funds in the US, has committed a total of $125 million to two separate Asia-focused private equity funds, according to a monthly transaction report.
This includes a $100-million commitment to Hong Kong-based PAG’s second real estate vehicle.
PAG has been in the market to raise funds for its Asia-focused core-plus real estate vehicle, PAG Real Estate Partners II, that was launched in May 2018 with an initial target of $2 billion.
In June, however, a PERE report indicated that the private equity firm is set to make a final close of the fund at $2.25 billion this month, which will be PAG’s largest pan-Asia fund to date. About $650 million has been deployed from the vehicle already.
The fund follows an investment strategy similar to its previous vehicle and picks up assets in gateway cities in the region – office space, multifamily in Japan and others. However, the second fund has also added Auckland to its mandate for investments, unlike its predecessor vehicle.
PAG is also on the road to raise up to $1 billion for its third special situations fund, PAG Special Situations Fund III. The vehicle has received the backing of several US pension funds, including the San Franciso City & County Employees’ Retirement System and Texas Permanent School Fund, which committed $50 million and $75 million, respectively.
PAG Special Situations Fund III will target an annual net return of 15 per cent. It will make investments of $10-40 million in markets including Australia, New Zealand, China, Japan, Southeast Asia and South Korea.
Besides PAG, ERS has also committed as much as $25 million to ERS Private Equity Emerging Manager Fund III LP, managed by Baring Private Equity Asia.
The vehicle is part of ERS’ emerging managers programme, which invests with up-and-coming asset managers with assets under management of $2 billion or less, in public equity, private equity, private real estate, hedge funds and fixed income.
ERS aims to double the size of the programme to almost $1 billion within this year, according to a report by PrivcapRE. The $28-billion ERS is an existing LP in Baring Private Equity Asia and has committed a total of $51 million to the Hong Kong-based firm’s latest Asia fund, Fund VII.
As part of their diversification plan, US-based pension funds are increasingly looking at the Asia Pacific for higher investment returns.
And what’s interesting to note is despite the ongoing US-China trade war, these funds are continuing to commit capital to China- and Asia-focused funds.
The Washington State Investment Board (WSIB) recently committed up to $300 million to Warburg Pincus’ China-Southeast Asia fund, which closed in June at over $4.25 billion. The fund is also backed by other US pension funds including the New Jersey Division of Investment and the Minnesota State Board of Investment.
Early this year, the $75-billion Oregon Public Employees Retirement Fund (OPERF) had made a $200 million commitment to China-based ClearVue Capital’s third fund, which seeks to raise $600 million in total.
OPERF had said it is looking to increase its private equity allocation to Asia in the long-term at the expense of developed markets. In the medium term, the fund’s allocation for Asia stands between 10 per cent and 15 per cent.
Meanwhile, the Los Angeles County Employees’ Retirement Association has backed Chinese venture capital firm Joy Capital with a $65-million commitment. It has also made a $100-million commitment to Lilly Asia Ventures’ fifth biosciences fund.