New Mexico Educational eyes private real estate

The $8.8bn pension is shifting its focus to private real estate, away from REITs, as it increases its allocation to the sector.

The New Mexico Educational Retirement System, with about $8.8 billion in assets, is looking to increase its exposure to private real estate – at the expense of its REITs portfolio.

The pension currently has a 5 percent allocation to public and private real estate valued at $415.9 million, and split 3.7 percent to REITs and 1 percent to private investments. However, Bob Jacksha, chief investment officer for the pension, said the fund was looking to make further inroads into raising its exposure to the private sector.

As of 30 September, New Mexico's private real estate portfolio was valued at $90.3 million, compared to the REIT investments, which were valued at $325.6 million. Jackson said the public pension had started to pare down its exposure to the REIT index in 2007 and 2008 and was slowly increasing its investments in private real estate.

Over the past 12 months, the pension's overall portfolio grew in value by $1.1 billion, with $688.6 million of gains achieved in the third quarter. This month, New Mexico Educational made a big bet on private equity distressed funds committing $80 million to Black Diamond Capital Management and Strategic Value Partners.

The pension committed $40 million to BDCM Opportunity III, which is reportedly targeting $750 million and had raised $206 million as of last year, according to a filing with the US Securities and Exchange Commission. New Mexico Educational also committed $40 million to Strategic Value Global Opportunities II. The target for the fund is unclear.

Jackson added that distressed investments represented a preferred strategy for New Mexico Educational. “It’s worked out well,” Jacksha said. “We still think there are some opportunities out there.”
New Mexico Educational will meet its goal of committing $225 million to private equity funds this year, Jacksha said. The pension will try to spend a similar amount in 2011, he said.