The $11.5 billion-asset New Mexico Permanent Funds expects to make its initial commitments to real estate this quarter.

The pension plan could invest some $600 million in real estate over the next three to five years. Courtland Partners of Cleveland is its consultant.

The New Mexico fund plans to initially focus on core-plus and value-added investments via joint ventures, which would buy properties of develop projects. Scott Smith, the fund's director of real estate, has already begun interviewing potential partners. One or two could be picked this month.

Investments in commingled funds might be considered down the road to achieve diversification. For example, it would be difficult to invest in international real estate or mezzanine loans through joint ventures.

The pension plan is really two funds--the $7.7 billion Land Grant Permanent Fund and the $3.7 billion Severance Tax Permanent Fund. The funds are New Mexico's primary endowments, funded by money the state receives for leasing state trust lands for mineral exploration and grazing rights, as well as royalties paid by companies in the oil, gas and timber industries. The funds, in place since the 1950s, distribute money to New Mexico's school and general funds, and account for 15% of the state's annual operating budget.

The state's legislature recently approved an increase--to 10% from 3%--in the amount of money the Severance Tax Permanent Fund could allocate to real estate. That change takes effect next month. The Land Grant Permanent Fund has a 3% allocation. The pension plan had not invested previously in real estate, but is now targeting the sector to increase diversification and flexibility in its portfolio. Currently, the bulk of its money is invested in stocks and bonds.

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