COLUMBUS, Ohio -- After investing exclusively for the Public Employees' Retirement System of Ohio, Columbus, Rothschild Realty Inc.'s Five Arrow Funds will be looking for new investment partners when it markets its next fund.
"We and the pension system both need to diversify," said Matthew W. Kaplan, managing director at Rothschild, the real estate affiliate of Rothschild Group.
Rothschild, New York, has raised $900 million from Ohio PERs through three funds, $600 million of that has been invested, Mr. Kaplan said.
"They ... offer an unusual blend of real estate experience and capital markets knowledge," said Mary Beth Shanahan, who oversees a $5.7 billion real estate portfolio at the $57 billion system.
The new fund, targeted at $500 million, will use the same strategy as its predecessors. Mr. Kaplan and his team invest in three or four of the 400 opportunities they consider every year, and they don't leverage.
"We look for companies with superior business plans whose interests are aligned with our own that are selling below (net asset value)," he said.
Five Arrows takes a 15% convertible preferred equity position in a public company or preferred debt in a private company that will convert to a common stock. Yields on public REITs range from 9% to 10%; on private, from 9% to 12%. The approach produced a 16.3% annual unleveraged internal rate of return, compared with the -1.5% returned by the Morgan Stanley REIT index in the same period, Mr. Kaplan said.
