UNITED STATES – It has been estimated that Connecticut Retirement Plans and Trust Funds will need to make new real estate commitments worth $900m (€668m) over the next two years if it is to reach its 7% target exposure.
The pension fund is planning to reach the threshold by investing in pooled real estate funds targeting both domestic and global property markets, and including core, value-added and opportunistic strategies.
Connecticut increased its target allocation from 5% to 7% in April 2010 as part of an asset allocation study, and the size of the fund is expected to grow at an annual rate of 3%.
Real estate consultant The Townsend Group is advising the pension fund on the selection of real estate funds and the pacing of investment.
Given the expected growth rate of the total fund, Connecticut's core property holdings are expected to rise from $650m to $900m between December 2013 and December 2014. Over the same period, value-add holdings will rise from $245m to $315m and opportunistic holdings will increase from $570m to $615m.
Townsend stated that the new commitments would enable the pension fund to diversify by vintage year and take advantage of mispricing opportunities in the real estate market while building its exposure.
Documents show that Connecticut committed $100m to the USAA Eagle Real Estate Fund in the third quarter of this year, half of which was immediately called by the manager.
The US open-ended fund will deploy 80% of its capital in core properties in the office, industrial, retail and residential sectors. The remainder will constitute build-to-suit industrial and apartment developments.
The fund is projected to deliver an 11.7% gross return for the first three years.