UNITED STATES - California State Teachers Retirement System is changing the overall composition of its real estate portfolio to introduce publicly-traded investments as a portfolio segment.
At present, CalSTRS has core real estate make-up of between 50% to 90% of the real estate portfolio while tactical allocations could be from 10% to 50%.
But under the new system, CalSTRS will have both core and tactical ranges of 30% to 70& as the pension fund may now place up to 30% of the portfolio in publicly-traded investments.
CalSTRS is expected to discuss this latest move at its June board meeting, having worked on this strategy with its real estate consultant, Pension Consulting Alliance, and could implement the changes, if approved at the following pension fund board meeting on July 12th.
Officials say the pension fund feels setting aside some capital in public real estate is a good idea as it believes public real estate opportunities may be a better use of investor capital and might be one way to access otherwise untapped real estate markets.
One good example is regional malls, as industry experts believe the highest quality regional malls are owned by public REITs, yet the only way to get an ownership stake in these assets is to buy stock.
CalSTRS could be investing in both public REITs and real estate operating companies but there has been no indication whether the program will focus solely on the US or whether investments could be global too.
Similarly, it’s also unclear whether the strategy would be internally managed or if outside managers will be hired.
CalSTRS currently has some exposure to REIT stocks, totallinng $1.6bn ($1.2bn euros) but none of these assets are held in the real estate asset class and are, instead, placed in its US public equities and non-US public equities allocations.
That said, CalSTRS does have plenty of room to invest capital in a public real estate strategy.
In 2006, the pension fund created an 11% targeted allocation for real estate that it wanted to reach over a three-year investment period and in March of this year, the real estate portfolio hit $14.8bn - amounting to 9.1% of the pension fund’s $162bn of total assets.