The Iowa Public Employees Retirement System (IPERS) has increased its target allocation to non-core real estate investments to represent 20 percent of its private real estate portfolio. With the pension plan’s current $27.12 billion size, the increase would give IPERS an additional $325 million to invest in the asset class in the long term.
IPERS’ real estate investment policy, which was updated in late June for the first time since September 2012, includes a new section addressing the fund’s investment diversification in private real estate. The section states that core investments will constitute 80 percent of the private real estate portfolio, while non-core investments and “market-driven opportunities” (including investments in real estate debt or niche property types) will make up the remaining 20 percent. Formerly, the policy detailed a 95 percent weighting to core and a 5 percent weighting to non-core.
Currently, the pension plan has an 8 percent target for overall real estate investments, with an allowable range of 6 percent to 10 percent for the asset class. The updated policy also includes a change to the breakdown between public and private real estate investments within the portfolio. While the 25 percent public and 75 percent private allocation remains the same, the target range has been amended to give greater leeway for both parts of the portfolio, allowing 15 percent to 35 percent to be allocated to public real estate and 65 percent to 85 percent to private real estate.
An additional change to the policy gives IPERS greater freedom when allocating capital to private real estate. Although the prior policy prohibited the pension plan from making any new allocations to real estate that were greater than 1.5 percent of the total value of its portfolio, the new policy notes that, “due to the illiquid nature of private real estate, allocations will be made on a deal-by-deal basis.”
At its December board meeting, IPERS staff stated that it would not recommend any new allocation to real estate equity in calendar year 2014. Proceeds from any property sales in the private real estate portfolio would be used to fund commitments to real estate debt strategies or be reinvested in the real estate portfolio at the staff’s discretion. IPERS still is following that strategy, according to spokesperson Judy Akre.