FROM: Don Pierce, Chief Investment Officer
SUBJECT: PRECap VIII Commitment
RECOMMENDATION:
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Recommend that the Board approve a commitment of £50 million to the PRECap VIII fund managed by PGIM Real Estate, subject to completion of due diligence and legal document review.
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BACKGROUND:
SBCERA has been investing in real estate managed by PGIM Real Estate (Prudential Global Investment Management) since 2003 and the PRECap team since 2016. SBCERA’s previous commitments were £20 million and £50 million to the last two vintages. PGIM is a strategic relationship manager in SBCERA’s real estate portfolio. Staff recommends a commitment of £50 million (currently about $68 million) to PRECap VIII.
The portfolio management has been stable since our initial investment. Andrew Radkiewicz, Andrew Macland, and Mathew Crowther continue to lead the team. The PRECap real estate debt team is responsible for origination, structuring, and execution of its investments.
The PRECap strategy aims to fill a structural void in the real estate finance market that is a result of tougher bank regulations. The team seeks to build a diverse junior debt and preferred capital portfolio secured by real estate assets located in the UK, Germany, and other Western European Markets. The focus of PRECap VIII will continue to be primary origination of single asset loans or cross collateralized loans in situations where traditional banks are unable to provide funding. The approach targets investments with the following characteristics: attractively priced, good fundamentals, sustainable income potential, and asset management potential.
The results over the last two funds have been very different to date. PRECap VI invested capital between 2016 and 2020 and thus faced multiple headwinds: Brexit, pandemic, and the meaningful shift in demand for some property types - such as office. The first fund we committed to with this team has returned about -90 basis points net as of June 2025. While this is disappointing, we believe the team executed well in defending value and limiting the downside. PRECap VII was launched in 2020 and it has faced fewer headwinds. This most recent fund has returned about 10% on a net basis through June of this year.
PRECap VIII is targeting a net return of 12%, with about 8% of the return coming from current income. We think that more of the return will come from income going forward.
The exposure to Real Estate has remained flat at 3.7% of plan assets as of June 2025 relative to the start of the year. The exposure remains below the Board’s approved target of 5% for Real Estate but within the range of 0-10%. The Board approved a Real Estate Pacing Plan for 2025 that targeted up to $145 million in commitments. Year to date, SBCERA has committed $75 million to a new fund commitment and anticipates finalizing a co-investment for between $20-$25 million. Inclusive of the PRECap VIII commitment, SBCERA would be $20-$25 million over the pacing plan for 2025. Staff, in consultation with NEPC, is comfortable with this given how far under the target we are and that we have under committed to real estate in most recent years. As a reminder, when commitments are over or under the pacing plan target, the differences are incorporated into the recommendations in subsequent years. Debt strategies are included in SBCERA’s calculation of core exposure.
BUDGET IMPACT:
Investment Costs are deducted from Net Asset Value.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Jacob Abbott
ATTACHMENTS:
Exhibit A: PGIM PRECap VIII Presentation
Exhibit B: NEPC Board Memo