South Korea’s Public Officials Benefit Association (POBA), a local public fund for government employees, will invest $50 million in a real estate mezzanine fund created by New York-based global asset manager Blackstone Group L.P. with an aim to deliver 7 to 8 percent returns a year.

According to investment bank industry sources on Thursday, the POBA recently decided to invest $50 million in Blackstone’s mezzanine fund at its preliminary investment review committee with a plan to finalize the decision by the end of this month. The $1 billion worth Blackstone fund will invest in senior mezzanine debts backed by lucrative real estates and the private equity operator is said to be planning to raise $600 million for the first batch of fund in the first half of this year.

New York State Teachers` Retirement System pension fund is also known to have decided to invest $200 million in the fund, and other major insurance firms and institutional investors in the U.S. and Korea reportedly are mulling to join the fund. Among Korean big investors, Hanwha Life Insurance, KB Insurance as well as other local public and social funds are said to be contemplating to invest in the fund.

Market observers expected the Blackstone’s real estate mezzanine fund to deliver annual returns between 7 and 8 percent. It is considered a less risky fund compared to direct real estate investments as it will mainly invest in senior mezzanine debts backed by commercial buildings located in major cities across the world.

An unnamed investment bank industry official said the latest fund by Blackstone is different from its previous real estate funds that had mostly invested in assets that could deliver higher returns. But this fund guarantees more stable returns as it will invest in high-grade debts, he added.

The internal rate of return, or the index that measures the profitability of potential investments, of Blackstone’s previous funds that invested in real estate debts all hovered above 10 percent, according to market experts.

By Kang Doo-soon and Song Gwang-sup

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