The Employees Retirement System of Texas is seeing a slowdown in its real estate capital calls, with a significant decline in the past fiscal year, according to its second quarter investment report released last week.

The Austin-based pension system committed $115 million to real estate in the 2017 fiscal year ending June 30, with $14.2 million capital called in the same period. In the 2016 fiscal year, $142.7 million in capital was called and $245 million was committed, according to the Q2 2016 report. In the 2015 fiscal year, ERS committed $500.8 million, of which $282.1 million had been called as of June 30.

Although the lower capital call numbers are partly a reflection of ERS’s steadily decreasing commitments to real estate, which peaked at $599.9 million in 2011, the percentage of capital called versus committed in real estate has also been declining in recent years. In the 2017 fiscal year, 12.4 percent of capital committed was called, compared with 58 percent in 2016 and 56 percent in 2015.

The pension system has also decreased its number of private real estate deals, from a high of 10 in 2014 down to three in the last fiscal year.

“The program was new and basically ‘front loaded’ to take advantage of what appeared to be attractive vintage years in 2010 – 2014,” Betty Martin, ERS’s investment services director, explained in an email to PERE. “Also, the funds that closed in 2015, 2016 and 2017 take a few years to draw down capital.”

ERS did not respond to further questions.

In the last fiscal year, the pension system made all its real estate commitments in February. In that round of investments, ERS earmarked $50 million to DRA Advisors for the firm’s latest value-added fund, DRA Growth and Income Fund IX, PERE previously reported. The pension system also invested $40 million in Wheelock Street Capital’s most recent opportunistic fund, Wheelock Street Real Estate Fund V, and $25 million to Pennybacker Capital’s Pennybacker IV, a value-added vehicle.

ERS is not the only US public pension system that is seeing capital calls fall. The California Public Employees’ Retirement System invested $1.6 billion of capital in real estate in the fiscal year ending June 30, well under the $4.6 billion approved for deployment, PERE reported earlier this month. Both the targeted and actual deployment in the asset class were significantly lower from the previous fiscal year, when $2.9 billion was invested in real estate, compared with $7.9 billion approved for investment.

The challenges of capital deployment stemmed from core real estate’s increased valuations and “fierce” competition from groups including other pension systems and institutional investors dissatisfied with returns generated by fixed income strategies, CalPERS’ property consultant, the Pension Consulting Alliance, wrote in an August meeting memorandum.

“Four or five years ago, if we gave [managers] $500 million, 50 percent would be put to work. This year, it’s looking more like 25-30 percent. Prices are moving up,” Paul Mouchakkaa, CalPERS’ managing investment director in real estate, said at the PERE Global Investor Forum: Los Angeles in April. “What does that mean for us? It’s much tighter and a more competitive situation.”

At last week’s meeting, ERS also approved a recommendation by investment advisor Aon Hewitt to increase its real estate allocation from 10 percent of its overall portfolio to 11 percent in one to two years and to 12 percent in three to four years. The long-term allocation would comprise a 9 percent private real estate allocation and a 3 percent listed real estate allocation.

Overall, ERS’s $1.9 billion private real estate portfolio returned 12.2 percent in the year ending June 30, above its 7.4 percent benchmark, according to meeting materials.