ACORE Capital has closed its first discretionary commingled fund on $556 million, PERE has learned.
Launched in May 2015, the California-based group has originated $16 billion in loans, relying solely on separate account capital. Fundraising for ACORE Credit IV began a year and a half ago to broaden its investor pool, managing partner Boyd Fellows told PERE.
“The primary reason we went on the fundraising trail for a commingled fund was to diversify our investor base,” Fellows said. “We have quite a large separate account business. However, many investors prefer to invest via commingled funds.”
ACORE Credit I, II, III and V are all separate account vehicles. Funds I, II and V are all between $1 billion and $2 billion while Fund III is in the multiple billions, PERE understands. SMA clients include Delphi Financial Group, a wholly-owned subsidiary of the Tokio Marine Group – the largest publicly traded insurance company in Japan – which has made three commitments of at least $1 billion each with ACORE. The firm’s other SMA client is a large US insurer.
For its first commingled fund, ACORE secured commitments from investors in North America, Europe, the Middle East and Asia, including public and private pensions, insurance companies, investment advisors, foundations and family offices. The firm raised $435.2 million from US investors according to a disclosure filed with the Securities Exchange Commission on June 3.
The firm had a soft target between $750 million and $1 billion for Credit IV. Douglas Weill, co-managing partner of Hodes Weill & Associates, ACORE’s financial advisor and global placement agent, said the fundraising shortfall is not indicative of its success. ACORE also raised more than $2 billion of separate account capital while marketing the fund, he told PERE, adding that a “substantial appetite for co-investments,” could help double the investment capacity of the fund.
“All things considered, for a first-time fund in a very competitive market, this was a really good execution,” Weill said.
ACORE has committed $308 million of the fund to 19 investments for so far. The firm originates, acquires and manages mortgages, B-notes, mezzanine debt, bridge loans and preferred equity throughout the US. Its $13.6 billion of assets under management includes a variety of property types, geographies and borrowers.
Large institutions often prefer separate accounts for their real estate credit investments, but those vehicles typically carry allocation limits on specific regions and property types. This can be problematic for repeat borrowers, which account for more than 55 percent of ACORE’s client base. Credit IV will follow roughly the same strategy as ACORE’s separate accounts business, but Fellows said it will provide an additional source of capital should one of the other vehicles hit its cap.
“Managing multiple pools of capital enables us to serve our repeat borrower clients by, more often than not, being their go-to shop for all their various capital requirements,” Fellows said.
Demand for real estate debt strategies has grown in recent years as investors seek stable returns at the peak of the economic cycle, Weill noted. The market has responded with dozens of competing vehicles, but ACORE stands apart by focusing solely on credit and boasting a solid track record, he said.
ACORE declined to share its return targets for Credit IV, but Weill said the fund is appealing at a time when performance expectations have been moderating. US pensions are forecasting total returns of 6.3 percent for their domestic real estate portfolios this year, according to a second-quarter survey from the Pension Real Estate Association. Projections fall to 4.9 percent in 2020 and 4.2 percent in 2021.
“We’re in an environment where the return expectation for equity strategies is pretty low,” Weill said. “That is why strategies that demonstrate high single-digit return opportunities in a fairly conservative portion of the capital stack are resonating at this point in the cycle.”