The State of Wisconsin Investment Board made two commitments to real estate during the fourth quarter and increased its overall allocation to the asset class, according to materials from its Wednesday meeting.
The Madison, Wisconsin-based pension fund managed $6.4 billion in real estate and $89.4 billion overall as of December 31. For 2017, SWIB increased its real estate allocation from 7 percent of its overall portfolio to 8 percent. In the fourth quarter, SWIB earmarked $150 million to Wilson HCF Wisconsin Holdings 6, a separate account run by Chicago-based investment manager Heitman. A spokeswoman for Heitman declined to comment on the separate account, and SWIB could not be reached.
Additionally, SWIB allocated $90 million to an industrial joint venture with Carson Companies. The Rancho Dominguez, California-based private real estate investment trust invests in logistics real estate in southern California, Houston, New Jersey and Philadelphia, according to its website. A spokesperson for Carson Companies could not be reached.
SWIB also highlighted potential changes under President Donald Trump’s administration that could affect real estate, including “potentially higher economic growth; impacts from immigration and trade policies; and a range of Federal tax law changes.” The pension fund did not indicate whether these changes would be positive or negative for the asset class. If regulations loosen under Trump, SWIB noted that debt flows may pick up, after banks – under increased government scrutiny during the prior administration – tightened their lending standards for commercial real estate mortgages in 2016.
In 2016, SWIB’s real estate portfolio returned 10.8 percent, beating its 10.1 percent benchmark. The pension fund invests largely in core real estate, which comprised 72 percent of the real estate portfolio as of the end of Q4, well above the 50 percent minimum. Across return profiles, SWIB noted that “lower returns are expected going forward as interest rates rise, driving cap rates higher.”