Michigan Muni pension fund commits $140 million to ElmTree

Michigan Municipal Employees' Retirement System, Lansing, finished building out a 4% target allocation to triple net lease fixed-income investments with a $140 million commitment to ElmTree Funds earlier this month.

The investment committee of the $7 billion pension fund approved the target allocation in June and, earlier this year committed $140 million to triple net lease specialist manager Oak Street Real Estate Capital, according to a news release from the fund.

The move is part of the pension fund's restructuring effort begun earlier this year to restructure its fixed-income portfolio to a core-satellite approach.

Triple net leasing is one of the satellite strategies in the fixed-income portfolio and involves the investor entering into long-term lease agreements with corporations, which pay all maintenance, property taxes and rental fees.

Michigan Muni will earn “stable, predictable cash flows” from the lease deals and will benefit because the leasing market “is far more liquid than traditional real estate markets,” according to the news release.

Jeb Burns, chief investment officer, was not available for an interview, but said in the release: “With traditional fixed income likely to struggle in coming years, we had to think outside the box a little.”