US roundup: PERA New Mexico, Ohio Bureau, San Bernardino, CT Retirement

Public Employees Retirement Association of New Mexico is increasing its allocation to real estate following a review.

The pension fund’s investment committee has approved a 5% allocation of its $13.8bn (€9.9bn) total plan to real estate – up from 3%.

PERA, which has a real estate portfolio valued at $422m in January, said it was motivated by the desire to diversify and hedge against inflation.

Julian Baca, deputy chief investment officer for the pension fund, said that the new allocation is equivalent to having $420m of new capital to invest.

The pension fund had planned to invest $80m in real estate under its previous allocation for 2014, with value-added funds investing in Europe. PERA’s most recent commitments were $50m into Wheelock Street Real Estate Fund II in December last year and $40m into DRC European Real Estate Debt Fund II in June 2013.

PERA, which last completed an asset allocation review in 2012, will implement the increase in allocation once it gets full board approval.

Ohio Bureau of Workers Compensation Fund is planning to invest $250m worth of additional capital in a value-added strategy. Capital will be placed into investment funds buying assets in the US and globally.

Ohio BWC has a 1.5% targeted allocation for value-added. Its total real estate portfolio was pegged at $1.3bn as of September 2013.

The capital to be invested is in addition to its most recent real estate investment – a commitment of up to $50m to the Rockbridge Hospitality Fund VI.

Bruce Dunn, chief investment officer for Ohio BWC, wrote in an e-mail that positive economic fundamentals - combined with BWC’s low exposure to the value-added sector - made diversifying beyond core real estate attractive. The fund will invest in the US hotel sector, through equity and junior debt investments in branded hotels, typically rated 2.5 to 4 stars with 100 to 400 rooms.

Rockbridge Capital has a targeted a total equity raise of $250m to $350m for the fund, with the portfolio leveraged to a 70% loan-to-value ratio. The fund has a 15% net IRR. Rockbridge will co-invest in the fund, with either $5m or 1.5% of the aggregate investor capital commitment to the fund.

San Bernardino County Employees’ Retirement Association has approved a $50m commitment to the open-ended Invesco Real Estate Asia Fund.

The long range goal for the fund is in the $2bn range for the next five years.

Don Pierce, chief investment officer for the pension fund, said, “We think that there is a 100 basis points difference from a return perspective in investing in core real estate in Asia as compared to the US.

”Another factor for us is our capital can be called by the manager right away as the fund doesn’t have an entry queue as is the case with many of the large open-ended core commingled funds in the US.”

The Asia fund will target the office, industrial, retail and apartment sectors, with initial investments in Japanese offices. Korea, Australia and Indonesia are also being targeted.

San Bernardino has terminated its use of The Townsend Group as a real estate consultant, with the fund’s existing general investment consultant, NEPC taking over.

“We felt that since we are moving away from a separate account strategy and more towards commingled funds in real estate, we didn’t need a consultant just for the real estate portfolio,” Pierce said.

Connecticut Retirement Plans and Trust Funds is looking to make a commitment of up to $50m to the Cypress Acquisition Partners Retail Fund.

The pension fund is looking to plug gaps in its real estate portfolio. Lee Ann Palladino, chief investment officer for Connecticut, stated in a board meeting document that the investor is below its investment policy for both valued-added real estate and retail property.

Connecticut has invested $192m in value-added strategies, or 14% of its real estate portfolio - below its sub allocation for the strategy of 25% and under the targeted range of 15% to 35%. Its retail exposure is 14.9% in comparison to the 23.3% retail exposure for its benchmark, the NCREIF Property Index.

Cypress Real Estate Investment Management is looking to raise $400m for the fund, having so far raised $316m. Investment in US retail properties in need of reletting or renovation should, Connecticut said, achieve a net compounded annual IRR of more than 13.5%. The fund aims to achieve an annual 7% average current return distribution to investors over the fund’s life.