PSERS strengthens value-add portfolio

The public pension looks to balance its investment portfolio with value-add commitments.

  • Name: Pennsylvania Public School Employees’ Retirement System
  • HQ: Harrisburg, US
  • AUM: $76.0 billion
  • Allocations to alternatives: 30%

Pennsylvania Public School Employees’ Retirement System has confirmed $300 million in commitments across two value-add private real estate vehicles, according to materials from the pension’s recent investment committee meeting.

PSERS has allocated $175 million to Cabot Industrial Value Fund VII alongside a further $125 million to DRA Growth and Income Fund XII. These commitments are consistent with the pension’s current goals to both focus on domestic real estate and grow the value-add portfolio, while reducing the opportunistic portfolio.

Cabot Industrial Value Fund VII will build and acquire mid-sized, multi-tenant industrial warehouses near urban areas that have large, dense populations with high average incomes, low unemployment rates, a steady labor force, and transportation infrastructure.

Cabot plans to invest primarily in North American markets but maintains discretion to invest up to 30 percent of the Fund outside of North America.

In its diversified mandate, DRA Growth and Income Fund XII will provide select exposure to the office and retail sectors. The Fund will capitalize on inefficiencies in real estate markets to acquire operating assets at a discount to replacement cost, and is expected to have sizeable exposure to secondary markets.

Prior to these commitments, PSERS maintained a strong relationship with both fund managers. Cabot Properties has received $667.5 million in PSERS investment across seven funds since 2008, while DRA Advisors has also received PSERS investment across seven of its funds, totaling $530 million.

Including these recent commitments, PSERS currently allocates 45.6 percent of its real estate portfolio to value-add investments, with an additional 39.6 percent allocated to opportunistic investments. The remaining 14.8 percent of the portfolio focuses on vehicles which acquire/invest in core assets.

PSERS currently allocates 7 percent of its total investment portfolio to real estate, totaling $5.32 billion in capital. As illustrated below, the pension’s recent private real estate commitments have focused on North American value-add vehicles, with a prioritization on the industrial sector.

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