Oregon’s state pension plan decided against increasing its investment in two real estate funds being raised by Lone Star Funds, the Dallas-based investment firm specializing in distressed mortgages and other property assets.
The Oregon Investment Council voted today at its monthly meeting to keep its investment in Lone Star Fund VII and Lone Star Real Estate Fund II at $400 million, James Sinks, a state Treasury spokesman, said in a telephone interview. When that commitment was made last September, Oregon had said it would consider adding another $400 million in 2010. The council invests the $51 billion Oregon Public Employees Retirement Fund.
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 voted today to split its $400 million equally between the two Lone Star funds, Sinks said. The state 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.
Oregon has invested profitably with Lone Star for 15 years and the firm represents almost 17 percent of the state pension’s real estate holdings based on net asset values, and more than 20 percent 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 fund-raising 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.
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