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Tennessee ups targets for real estate, private equity

The Tennessee Consolidated Retirement System is betting on alternative asset strategies for long-term growth while revising its allocations to other asset classes, including equities and fixed income.

The Tennessee Consolidated Retirement System has increased its interim and long-term targets to private equity, including strategic lending and real estate, while lowering targets to most other asset classes, PERE's sister publication, Private Equity International, reported Wednesday.

The prior policy target of 7 percent to real estate was increased to 10 percent both as an interim target and strategic long-term target. The upper limit for the asset allocation range for real estate was also increased to 20 percent from 10 percent.

“The TCRS Board of Trustees adopted a new revised asset allocation strategy as recommended by the Department of Treasury investment staff and supported by Verus Advisory, the general investment consultant for TCRS,” said a spokeswoman for the Tennessee Department of Treasury.

The revision was approved at TCRS's board meeting on November 18.

“Among other items, the revised investment policy sets limits to the asset allocation range for private equity, including strategic lending, and real estate.”

Nashville-based TCRS had a 3 percent policy target to private equity, which the board agreed to increase to a 7 percent interim target and a 10 percent strategic long-term target. It also agreed to increase its 5 percent policy target to strategic lending to 7 percent on an interim basis and to a 10 percent strategic target. The interim targets will become effective January 1 and are intended to be in effect for a three- to five-year period to transition to the long-term strategic targets, the spokeswoman noted.

The board also set a maximum allocation of 20 percent for private equity including strategic lending, up from 10 percent.

Strategic lending includes high-yield bonds, levered and unlevered loans, emerging market debt, distressed debt, mezzanine debt, direct lending, structured credit and real estate debt, among other opportunities.

Meanwhile, the pension plan lowered its targets to its different equity strategies by one to two percentage points, and its fixed-income bucket to 20 percent from 25 percent. It also decreased its target to inflation-indexed bonds to zero from 4 percent.

TCRS, which manages $43 billion in assets, has a 3.2 percent allocation to private equity and a 7.5 percent target to real estate.

In the past year, the pension system has committed to three North America-focused real estate funds. TCRS earmarked $40 million to Normandy Real Estate Fund IV and $47.5 million to American Real Estate Partners Strategic Office Fund II, both value-added funds that invest in office, and $70 million to Exeter Core Industrial Club Fund II, an industrial real estate core vehicle, according to PERE data.