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Arizona pension wants to double RE allocation

The $7.3 billion Arizona Public Safety Personnel Retirement System is looking to significantly increase its exposure to real estate across the US and internationally.

Arizona’s Public Safety Personnel Retirement System is looking to double its investments in real estate, the fund’s administrator James Hacking told PERE.

The $7.3 billion (€4.8 billion) scheme, which in February approved equity commitments totaling up to $125 million to real estate and infrastructure funds operated by Apollo Management and Macquarie Infrastructure, currently allocates just three percent of its assets to real estate against a target of six percent.

Hacking said it was “important” to now increase the scheme’s exposure to real estate in a bid to help the scheme “diversify.”

Previous pension real estate investments have focused primarily on the Arizona residential market with some shopping center developments. However in the current housing market Hacking said it was key to search further afield, not just across the US but also internationally. “We are looking at all opportunities. We have to increase our diversification,” he told PERE.

The fund, Hacking said, would increase its real estate investments “over time” but he admitted they were currently “nowhere near” the target of six percent. “[We are currently at] three percent. We will achieve [the increase] over time. It depends on the opportunities for diversify our real estate exposure.”

The Arizona residential property market has been among the hardest hit in the US, with figures from the Office of Federal Housing Enterprise Oversight showing a 2.4 percent drop in house prices in the 12 months to December 2007. California was the worst-hit state recording a 6.65 percent drop over the same period.

At its February 20 board meeting, the Arizona scheme – which represents retired police, fire fighters, judges, elected officials, and corrections officers – approved commitments of up to $70 million to Apollo’s real estate Value Enhancement Fund VII and up to $25 million each in Macquarie Infrastructure Group’s Infrastructure Partners II Fund and European Infrastructure Fund III at the February meeting.

The board also approved investments of up to $75 million with Apollo Investment Management’s Fund VII and up to $80 million in distressed debt with BlackRock’s Mortgage Investor Master Fund.

As part of their plan to increase their allocations to real estate, the Arizona retirement scheme approved plans to start contract negotiations with ORG Portfolio Management. They also hope to be advised by StepStone Group and Capital Dynamics to help cover alternative investments in the US and globally.