Alaska over-weighted to private real estate by 2%

Real estate was the only asset class to make a positive return for the $29.5bn pension fund, however allocations to private equity real estate have now topped 10.5% against a target of 8%.

The Alaska Permanent Fund reported a 8.5 percent loss on its investment across all sectors at the end of September, with real estate the only asset class reporting any gain whatsoever.

The $29.5 billion pension fund, which manages income from the state’s oil and mineral resources, said public and private real estate investments overall returned 0.2 percent for the first quarter of the fiscal year, compared to losses in stocks, bonds and hedge funds.

“These certainly aren’t easy times,” said Michael Burns, chief executive officer, in a statement.  “Our board sets an allocation for the long term, and accepts that volatility will come in the short term. Our job now is to hold to our long term plans, and not be tempted to change course in the middle of the storm.”

However, according to documents on the fund’s website, the pension is over-weighted in its allocations to private equity real estate by more than 2 percent. According to monthly performance returns as of the end of September, Alaska had committed 10.5 percent of its total assets to private equity real estate fund managers against a target of just 8 percent. It has a target allocation range of 3 percent.

The fund has relationships with Richard Ellis, Kennedy Associates, L&B Realty Advisors, LaSalle Investment Management, Sentinel Real Estate and Simpson Housing Limited Partnership. In the three months to September, private equity real estate returned 0.56 percent gains against 9.2 percent in the past year and 14.73 percent over the past five years.

The report went on to say the market value, as of the end of September, for the assets was $3.58 billion against a cost of $2.9 billion. Public real estate investments had decreased in value over the past year, the pension said, losing 15.4 percent in the past year alone.

Alaska’s sole private equity investment – with Pathway Capital Management – had increased slightly in value as of the end of September, with a market value of $795 million compared to an initial investment of $776.2 million.

Like other institutional investors, Alaska has suffered from the so-called denominator effect, whereby the plummeting value of an investor’s public equity programme causes its actual real estate allocation to rise as a percentage of the fund’s overall assets under management.

The Oregon Public Employees Retirement Fund, which has watched its actual allocation to real estate to the upper limits of its target range, said today it would also likely forgo any new relationships with its private equity managers in 2009 because of such concerns.