AMERICAS NEWS: Texas increase ‘em

Nearly two years after deciding to significantly increase its real estate allocation, the Employees Retirement System of Texas is now putting its money where its mouth is.

The $21 billion Austin-based retirement system currently has only 2 percent of its overall portfolio invested in real estate, but is planning to increase that allocation to between 7 percent and 8 percent as part of a long-term diversification strategy. In the next two years, the public pension plan said it was looking to invest at least $600 million – and up to $1 billion – in real estate deals.

As part of that drive, the pension – created in 1947 to oversee retirement benefits for Texas state employees – last month issued a $50 million request for quotation for a real estate emerging fund of funds manager focused on US markets.

In the next two years, the [Employees Retirement System of Texas] said it was looking to invest at least $600 million – and up to $1 billion – in real estate deals.

The fund of funds mandate will target emerging managers focused on either debt or equity, with submissions due at the time of press. A final decision is expected by August, a spokeswoman told PERE.

The request for proposal though is just one part of ERS’ plans to invest roughly 8 percent of its $21 billion portfolio in real estate over the next eight years.

The pension said it was looking to pump 25 percent of its capital in public real estate, with the remaining 75 percent in private real estate investments. Both of these weightings will have a 10 percent range, allowing public real estate investments to sit between 15 and 35 percent of the total real estate portfolio, and private deals to sit between 65 and 85 percent.

Although 70 percent of ERS’ real estate capital will target domestic investments, up to 30 percent will be invested internationally, the spokeswoman said. Focus would be primarily on developed markets such as the UK, Japan and Australia with up to 20 percent targeting emerging countries such as Brazil, China and Mexico.

The pension fund said it would target core, value-added and opportunistic real estate investments as well as global publicly-traded securities and infrastructure. ERS said infrastructure would continue to grow as an emerging investment area, and could eventually represent up to 10 percent of the entire real estate bucket.
The Texas pension is eyeing a total average real estate return of 10.2 percent.

In the past year, ERS said its real estate portfolio had returned 50.8 percent.