HARTFORD, Conn. - State of Connecticut Retirement and Trust Funds will reallocate the $430 million it received from the sale of its interests in 27 closed-end commingled real estate funds to direct real estate investments, venture capital and fixed-income investments.
The reallocation will take place during the first quarter, but no searches are under way.
The $13.9 billion Connecticut fund sold its interests in the closed-end commingled funds to a fund of Landmark Partners, a private equity firm in Simsbury, Conn.
A number of Connecticut's large pension fund peers bankrolled the deal. Landmark raised $450 million for Landmark Equity Fund VI from 12 institutional investors, said Stanley F. Alfeld, Landmark general partner. Of that, $430 million was used to buy the Connecticut properties.
Some of the investors were limited partners in other Landmark funds, such as the pension fund of IBM Corp. - the lead investor - and the Northern States Power Co. pension fund. New investors include the Howard Hughes Medical Institute.
Landmark still has about $20 million left to invest in similar purchases of commingled real estate fund interests and hopes to raise additional money for a second closing of Equity Fund VI in the first quarter.
Connecticut's real estate interests bought by Landmark were valued at $520 million as of Dec. 31, 1995, and $484 million as of June 30, 1996.
But Mr. Alfeld and a spokesman for Connecticut state Treasurer Christopher Burnham said the purchase price's discount to net asset value was not as steep as it may appear. One news report placed the discount at 11%, but the Connecticut spokesman said officials wrote down the valuations of several properties during 1996 and liquidated $10 million in properties.
Mr. Alfeld wouldn't comment on the size of the discount, but said of the $520 million and $430 million figures: "You can't compare those two numbers because of all the activity that took place during the year."
He added: "I think I got a great deal."
The deal took six months and closed on schedule Dec. 23. But four days earlier, Connecticut officials weren't sure Landmark and its investment banker, Merrill Lynch & Co., were going to be able to raise the money, Mr. Burnham's spokesman said.
Many industry observers were skeptical the deal would go through because it aimed to bring liquidity to an asset class commonly regarded as illiquid. Also, it was Landmark's first real estate deal.
Mr. Burnham said in a statement: "Commingled accounts had stripped Connecticut of control over much of its real estate and it made the accounts illiquid. Going forward, the state will not be hamstrung by owning interests in investments that have no liquidity."
The deal enabled Connecticut to liquidate holdings in 250 separate properties in one fell swoop.
Mr. Burnham said the pricing on the Landmark deal reflected an actual income yield of 7% on the properties.
