Maryland’s market

Mansco Perry, the chief investment officer of the Maryland State Retirement Agency, says the pension system views real estate as a long-term asset class, still wants real estate fund managers … but wants fees to come down. By Robin Marriott

The Maryland State Retirement Agency is not alone among institutional investors. Like others, it suffered a fall in the value of its real estate portfolio after the credit crunch. It also belongs in the class of LP that insists management fees are “too high”. But crucially for the asset class, it also believes real estate is a long-term asset class to remain involved with. 


Baltimore-based Maryland has about $2 billion of real estate assets and a target allocation of 10 percent, though the present allocation is closer to the 6 percennt to 7 percent range. Among its third party real estate managers are Richard Ellis, JER Partners, MGPA and Lubert Adler.

Chief investment officer Mansco Perry said it has taken a decision to sell its direct real estate investments over the next five to 10 years in favour of expanding its indirect programme.

It currently holds one third of its real estate assets directly, one third in REIT equities and one third in indirect funds. He said: “We don’t believe we are of a size to have an effectively diversified programme, so we believe the best way to diversify our real estate programme is via the private equity real estate fund route. By size, we mean both in terms of assets and staff.”

Perry said the “prevailing winds” in the pension fund industry continued to be in the direction of indirect property management, a long-term trend that began many years ago, he pointed out.

We don’t believe we are of a size to have an effectively diversified programme, so we believe the best way to diversify our real estate programme is via the private equity real estate fund route. By size, we mean both in terms of assets and staff.

Mansco Perry

That is despite current criticism of many real estate fund managers over performance and communication issues.

But he also added: “Fees need to come down. If investors don’t believe that the manger is worth it, they should have no problems walking away. Manager selection should be our primary focus.”

Maryland is at the beginning of reviewing its real estate. Following that review, changes to its portfolio would be made, he explained.

Perry is among those chief investment officers who still view real estate as a long term asset class to be involved in. “Real estate has been a long-term investment for many pension plans but it is cyclical unfortunately. We are now experiencing one of the downsides of cyclicality which will cause some of us to rethink its role in the portfolio. That said, my belief is that real estate will continue to be an asset class in most globally diverse portfolios.”

Like every pension fund, Maryland has suffered a fall in the value of its overall investment portfolio in the past year, not just in the value of real estate. However, it is also an example of an institutional investor that has benefitted from the recovery in equities this year. In March, assets under management at Maryland were valued at $26 billion. As of November, this had risen to $32 billion.

Maryland has investments in private equity funds as well property funds, and Perry expects this to remain the case. “[Private equity] will bounce back too from current valuation issues,” he said.

At the same time, he admitted it was difficult to appraise asset classes because of the turmoil during the past two years. “I believe that once the economic environment and capital markets return to ‘normalcy’ we will all be able to better determine what our commitments to asset classes should be. That said, we are sure we have the right strategy in place.” That’s good news for fund managers.


Richard Ellis
Richard Ellis
Richard Ellis 5
Chesapeake Limited Partnership
JER Europe Fund III
JER Real Estate Partners Funds IV
Lion Industrial Trust
Lubert Adler Real Estate Fund III
MGPA Asia Fund III
Prudential Real Estate Investors II
Secured Capital Japan Real Estate Partners Asia

Source: Maryland's 2008 annual report


Equities — $17.6bn portfolio — 37% long term allocation — 55.4% actual allocation
Fixed income — $5.7bn portfolio– 15% long term allocation — 18.1% actual allocation
Credit — $0.4bn — 0% long-term allocation — 1.3% actual allocation

Real return — $2.4bn — 10% long-term allocation — 7.7% actual allocation
Absolute return — $0.7bn — 10% long-term allocation — 2.4% actual allocation
Private equity — $1bn — 15% long-term allocation — 3.4% actual allocation
Real estate $1.9bn — 10% long-term allocation — 6% actual allocation
Cash — $1.7bn — 3% long-term allocation — 5.5% actual allocation

Source: Maryland's 2008 annual report

Total $31bn 100% 100%