UNITED STATES – Kansas Public Employees Retirement System is planning to allocate $310m (€242m) to real estate over the next year, according consultant the Townsend Group.
Documents show investments will be split into two main strategies: $160m to be invested in non-core funds and $150m in core open-ended funds.
The approach is being driven by the relatively higher yields on real estate investments and the fact that the consultant views non-core as mispriced due to a risk-averse investor universe. The consultant remains focused on capturing historically wide return premiums in non-core by controlling operating risks in partnership with specialists that can manage assets effectively.
Next year’s $150m allocation to non-core is level with 2012’s commitment. The most recent investment approved by the pension fund was a $40m allocation to the Rockwood Real Estate Fund IX partnership and $30m of the target has so far not been committed.
Rockwood Capital is looking for a total capital raise for Fund IX in the range of $800m to $1.2bn and hoping to achieve a 13-15% net IRR for its investors. The fund will focus assets with solid and immediate cash flows and the chance to add value in the near term through value-creation activities. Potential strategies to create additional value will include development, re-leasing and re-development.
Townsend said there would be significant capacity for core investment in the medium term. This was due to the increase in the real estate allocation from 10% to 12%, a bigger focus on core investing from 50% to 60%, and the planned sale of separate account assets currently managed by AEW Capital Management.
The above factors would all result the pension fund potentially increasing commitments to two core fund managers over the next few years.
Townsend said the additional commitments could come in shape of an additional $125m into the UBS Trumbull Property Fund and $84m into the Prime Property Fund managed by Morgan Stanley Real Estate.
The fund currently invests around $1.1bn in real estate.