TRS to make $2bn of RE investments in 2009

The Teacher Retirement System of Texas is set to commit up to $2bn in capital to real estate in an effort to close the 6% gap between its actual and target allocations.

While most US pensions are hamstrung by the denominator effect, the $80.7 billion Teacher Retirement System of Texas (TRS) wants to plough some $1 billion to $2 billion into real estate in 2009.

The pension already has between $4 billion and $5 billion in unfunded commitments made over the “last couple of years to various strategies”, managing director of real assets Eric Lang recently told PERE. TRS currently plans to tack on more than $2 billion in commitments by the end of the year, although investment targets are re-evaluated each month as the pension fund’s total value fluctuates.

“We have about $3 billion invested in real estate and our current allocation with our fund value is about $8 billion so we have about $5 billion left to get invested,” Lang said. “You typically will allocate more than the money you need to invest because it takes time for it to be invested and to get money back.”

TRS’s current allocation to real estate was only 4 percent at the close of 2008, far short of the 10 percent long term target. The majority of TRS’ deployed capital this year will be in the context of separately managed accounts where the pension can “drive the investment decision a little bit” as opposed to commingled funds, Lang added.

“We think that distress is a big area,” says Lang. “We have focused a lot on debt anywhere in the capital structure and our most recent transaction is a senior debt investment. We’re also looking at purchasing distressed stable core real estate for our core portfolio where we’re under allocated.”

On top of an ambitious investment target, TRS is rolling out two new programmes in 2009: an emerging manager programme and a co-investment programme.

Read more about TRS’ latest investment initiatives in the April issue of PERE.