The Canada Pension Plan Investment Board and Redwood Trust have committed US$750 million to a new strategic capital partnership designed to invest in the U.S. residential real estate sector.

The partnership comprises a US$500-million asset joint venture and a $250-million corporate secured financing facility, Toronto-based CPPIB and Mill Valley, Calif.-based Redwood announced in a news release.

The JV will initially invest across Redwood’s broad suite of Redwood’s residential investor bridge and term loans, targeting US$4 billion in total acquisitions. CPPIB and Redwood will provide US$500 million in equity with the Canadian pension fund manager furnishing 80% and the U.S. company supplying 20%.

Redwood will manage the JV and received administration fees and performance bonuses if return targets are met.

The $250-million secured corporate financing will carry a two-year term with a one-year extension option. CPPIB will also receive about US$15 million in stock warrants and have the option to purchase an additional US$36 million in shares if certain performance targes are met.

“This transaction expresses our positive thesis on U.S. housing and other asset-backed credit opportunities,” said David Colla, CPPIB’s head of capital solutions.

CPPIB ranks among the world’s largest institutional investors. Redwood is a publicly traded finance company that specializes in housing credit.