The Florida State Board of Administration (SBA) has approved an increase of 3 percent to its real estate allocation target, which currently stands at 7 percent. The pension plan was over-allocated to the asset class as of September 30, holding more than $10 billion, or 7.2 percent or its total assets, in real estate.
The increased target is part of a larger allocation shift, where SBA will move 6 percent of its fixed-income allocation to real estate, global equity, private equity and strategic investments – with real estate receiving the largest portion of that reallocation. “When we’re thinking about a shift from fixed income to riskier assets, one thing that’s appealing about a scenario like that is the ability to access what we believe is investments with a higher risk-reward ratio than more traditional investments, like alternatives,” said Mike Sebastian, partner at consultant Hewitt EnnisKnupp, during the SBA’s investment council meeting in September.
With its greater exposure to property, the pension plan would seek to take advantage of “unique opportunities” in opportunistic, value-added and international real estate, as well as further diversify its core real estate portfolio, Hewitt EnnisKnupp noted in a recommendation on the new allocation. Indeed, Steve Spook, senior investment officer for real estate at SBA, said in a September interview with PERE that the pension plan could commit as much as $200 million to international property funds in the coming year.
With a 10 percent target, Florida SBA would have one of the largest dollar allocations to real estate among US pension plans. The California Public Employees’ Retirement System, New York State Teachers’ Retirement System and Ohio Public Employee Retirement System currently all have 10 percent allocations, while the California State Teachers’ Retirement System and the Teacher Retirement System of Texas both have 13 percent allocations, according to an asset allocation comparison of the 10 largest US pension plans by Hewitt EnnisKnupp.