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OPERS: RE super cycle is coming to an end

The Ohio pension system plans to be a net seller of real estate in calendar year 2016 and will not make new fund commitments in the asset class for the rest of the year.

The Ohio Public Employees’ Retirement System (OPERS) is slightly overweight in real estate, and so will continue its first quarter strategy of being a net seller, according to documents from its investment committee meeting last week.

OPERS managed $8.5 billion in private real estate, or 11.4 percent of its overall portfolio, as of the end of the first quarter, compared with a 10 percent real estate allocation target, according to board documents. The pension plan now expects to be “selling assets to capitalize on investor demand and moving closer to the allocation target.”
OPERS’ investment strategy will lead it to be a net seller of real estate this calendar year, with projected distributions of $2.4 billion and projected contributions of $1.4 billion.

OPERS currently has $1.8 billion invested in 36 real estate closed-end funds and $4.7 billion in 22 separate accounts, according to meeting materials. The pension fund plans to make $1.4 billion in dispositions through its separate accounts in 2016 and does not plan to make any new commitments to closed-end funds, noting that its “staff believes that the domestic commercial real estate ‘super cycle’ is coming to an end.”

During the first quarter, distributions totaled $344 million and contributions were $303 million, according to OPERS’ meeting materials. Out of its core holdings, OPERS sold two apartment assets and two office loans for a total of $96 million.

OPERS’ last major real estate commitment was a $400 million earmark to Blackstone's Strategic Partners Real Estate Special Opportunities Fund I in the fourth quarter, PERE previously reported. The opportunistic secondaries fund was set up to purchase closed-end real estate fund stakes from the California Public Employees' Retirement System (CalPERS), which sold the stakes to Blackstone in November for $3 billion as part of a larger strategy to simplify its holdings across asset classes.

OPERS' commitment will comprise about 19 percent of Blackstone's $2.1 billion capital raise for the secondaries vehicle, according to the pension system's documents.

Overall, OPERS’ private real estate portfolio has returned 16.3 percent in the fiscal year ending March 31, beating its 14.8 percent benchmark, the NCREIF Fund Index – Open End Diversified Core Equity (ODCE). Meanwhile, the pension system has returned 8.2 percent over the past 10 years, surpassing its 7.8 percent benchmark, according to meeting materials.