NEWS ANALYSIS: Added scrutiny

Ohio’s $8.5bn pension says its priority is to monitor existing fund manager relationship – but also look for re-up opportunities. PERE Magazine, November 2009.

“Monitor, monitor, monitor.” You couldn’t escape the key message emanating from the School Employees Retirement System of Ohio’s annual real estate review.

Real estate investment officials at the $8.5 billion pension told board members in October their number one goal for the coming year was to “actively monitor real estate managers”.

It’s a message being repeated across the US. For Ohio, which has 17 fund managers sponsoring 33 vehicles, positions on seven advisory boards and the opportunity for 16 manager meetings and seven due diligence reviews on top of quarterly financial reviews, it will get plenty of opportunity to act on its words.

However, despite Ohio’s portfolio rising in value by $1 billion over the past 12 months, the pension is still wondering “How much is too much?”, not just in terms of fund leverage but also with its mix of strategies.

The pension could consider reducing its overall allocation to real estate, currently 12.7 percent against a target range of between 5 and 15 percent, as part of efforts to increase its liquidity and handle its $250 million in unfunded commitments. A spokesman for Ohio SERS stressed no decision had been taken, and any changes would need to be approved by the board of trustees. But investment officials said in the review the pension would continue to reposition the portfolio by slightly decreasing its exposure to opportunistic and core real estate, and increase its exposure to value-added strategies.

Ohio officials insisted though they would look for new opportunities in two areas – including re-up opportunities with existing managers and increasing the pension’s exposure to international real estate beyond the US and Western Europe, particularly in Asia.

Officials said re-up opportunities were much slower to come to market, but for Ohio the most “likely” re-up opportunity it would evaluate was The Carlyle Group’s latest opportunistic offering, Carlyle Realty Partners VI.

No time frame had been set for either opportunity, the spokesman added, saying only that any re-up would likely fall within the fiscal year 2010, while increasing the pension’s international property presence was part of a plan to “reach and maintain a 15 percent exposure to non-US real estate”.