The Employees Retirement System (ERS) of Texas has decided to increase its allocation to real estate. Indeed, documents from the $23.6 billion state pension system reveal that ERS is now allotting 10 percent of its overall portfolio to real estate, up from its previous target of 8 percent.
A spokeswoman for the pension plan said the reason for the increase in allotment was due to ERS performing “a regular asset allocation study” and realigning all asset classes “in the ongoing effort to increase diversity and reduce risk in the overall investment strategy.” One source told PERE that ERS is not planning to change the strategy within its real estate portfolio, just how much it hopes to invest over time.
In August, ERS proposed committing nearly $600 million to private real estate during fiscal years 2013 and 2014, with a focus on value-added and opportunistic investments. For fiscal year 2013, which began on September 1, ERS is targeting $285 million in commitments, including $240 million for three to six investments in value-added real estate and $45 million for one to three deals in opportunistic real estate. In addition, the pension system proposed $305 million in private real estate investments for fiscal year 2014, which will include $100 million to core real estate, $160 million to value-added and $45 million to opportunistic.
Those earmarked funds are not part of the pension plan’s new 10 percent allotment to real estate. Moving forward, however, ERS anticipates these plans to evolve as the new allocation is implemented. A new real estate tactical plan will be presented to the board in August, just before fiscal year 2014 begins.
Separately, according to sources, the state pension system anticipates investing in two to three funds on behalf of its real estate emerging manager program before the fiscal year ends. This represents approximately $15 million of its total $50 million mandate.