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Alaska revamps real estate asset allocation

The $29bn oil and gas endowment plans to allocate 18% to a new real assets category, including real estate, infrastructure and Treasury inflation-protected securities. The target allocation to real estate is expected to increase 2%.

Alaska Permanent Fund Corporation has overhauled its asset allocation, creating a new real assets category including real estate, infrastructure and Treasury inflation-protected securities (TIPS).

The $29 billion fund agreed last week to revamp its asset allocation, to partner investments according to their expected risk and returns.

Michael Burns, chief executive officer of the oil and gas endowment, said in a statement it made better since to “segregate assets by their characteristics, rather than simply by type”.

Real assets will have a target allocation of 18 percent, including a target allocation to real estate of 12 percent – up from a previous 10 percent target – and a 3 percent target allocation to infrastructure and TIPS respectively. The infrastructure allocation has been kept at its current level of 3 percent.

Alaska’s actual allocation to real estate as of the end of April was 12.2 percent, according to performance data on the fund’s website.

Alaska also approved the creation of four other asset allocation categories, including a 53 percent allocation to “company exposure”, such as stocks, corporate bonds and private equity; a 21 percent allocation to “opportunity pool” investments like absolute return and distressed debt; a 6 percent allocation to “interest rates” such as government or government related bonds and a 2 percent allocation to “cash” or investments with a duration of less than 12 months.

Burns said the move was a “fresh approach” to viewing asset allocations. “This is a new approach to investing for us, in effect creating mini-funds within the permanent fund.”

According to Alaska’s website, the fund’s real estate investments were valued at $3.6 billion as of the end of April this year. The pension has invested more than $3.4 billion in direct real estate with managers such as Richard Ellis, LaSalle Investment Management and Sentinel Real Estate. It also invests in REITs through AEW and Wellington Management.

Alaska’s direct real estate portfolio returned -10.8 percent over the past 12 months compared to -52.1 percent for REITs. REITs though have performed well over the past month recording gains of 22.6 percent in April compared to returns of -2.5 percent over the past three months for direct real estate investments.

The reorganisation comes as Alaska set aside $500 million for private equity investing in fiscal year 2010 as well as giving investment staff greater flexibility to directly manage the private equity portfolio.

The private equity commitment is significant for Alaska because in February the fund pulled back on hundreds of millions of dollars in planned commitments to infrastructure and private equity funds that had been approved last July.