GLOBAL - The Maryland State Retirement System is set to add core real estate holdings to its portfolio to give investors an alternative to fixed-income investments.

The fund has a targeted allocation of 10% for the asset class. To date, it has invested $2bn (€1.5bn) in real estate, or 5.9% of its $34.3bn of total plan assets through the third quarter.

The pension fund is selling one of its separate account properties that it owns directly, a 300,000 square foot Festival at Riva shopping centre in Annapolis, Maryland.

Maryland State bought the property - managed by separate account manager LaSalle Investment Management - in 1995 for $41.7m. 

The pension fund said it was selling now to take advantage of market opportunities for core properties.

The move was also part of Maryland's decision in February of 2009 to eliminate its direct real estate investment programme gradually.

Maryland State is also reducing the REIT assets in its real estate portfolio to 20%. The pension fund said it made a strategic decision to reduce the exposure to public securities.

It has been reducing the amount it holds in public REITs over the past several months. As at the end of June, the REIT portfolio was valued at $846.9m and made up 41.5% of the total real estate portfolio.

By the end of September, the amount had been reduced to $736.9m or 36.1% of the real estate portfolio. 

Maryland State has two REIT managers, LaSalle Investment Management and Morgan Stanley Investment Management.

Both managers run active portfolios - LaSalle oversees an US only portfolio, while Morgan Stanley has a global ex US mandate.

Maryland State had produced returns on its REIT portfolio of 19.5% for one year, -8.93% for three-years and 2.31% for five years.