Oregon Investment Council, Tigard, on Wednesday decided against increasing its investment in two real estate funds being raised by Lone Star Funds.
The council, which oversees the $51 billion Oregon Public Employees Retirement Fund, Salem, voted at its monthly meeting to keep its investment in Lone Star Fund VII and Lone Star Real Estate Fund II at a combined $400 million, James Sinks, a state Treasury spokesman, said in a telephone interview.
The council originally put $300 million in Lone Star Real Estate Fund II, which holds commercial real estate, and $100 million in Lone Star Fund VII, which aims to buy residential distressed debt and property-owning entities such as banks.
When the original commitments were made in September 2009, the council had said it would consider adding another combined $400 million to the funds in 2010.
Lone Star has struggled to invest money from its funds as debt financing shrinks and sellers keep assets from the market after price declines. As of Sept. 1, Lone Star Fund VII had invested $115 million in three transactions, according to documents released by Oregon. Lone Star Real Estate Fund II hasn’t made any investments, the documents show.
Oregon has invested profitably with Lone Star for 15 years, and the firm represents almost 17% of the retirement fund’s real estate holdings based on net asset values, and more than 20% of unfunded commitments to real estate, according to the documents. This so-called manager concentration was cited as a reason for not putting more money into Lone Star’s funds.
Unless Lone Star seeks and is granted an extension, its fundraising deadline will expire Nov. 30, according to the documents. Lone Star originally set out to raise $20 billion for its two newest funds. It later scaled that back to $10 billion.