UNITED STATES - Massachusetts Pension Reserves Investment Management Board has terminated its separate account REIT manager relationship with Wellington Management, on the back of poor performance, and awarded a new $40m (€28.6m) allocation to the AFL-CIO Housing Investment Trust Fund.
Wellington had underperformed versus its benchmark on three different return periods as the one-year return was -54.94% - 583 basis points below the NAREIT Equity benchmark and the three-year return of -21.01%, was a loss of over 4% below the benchmark. The five-year return of -0.09% was 42 basis points under the benchmark.
Similarly, the pension fund wants to increase its international REIT exposure from 30% to 50%. And this would mean moving the international component from $239.3m to $398.9m.
So Wellington has been replaced by European Investors, with the assistance of its consultant, Callan Associates.
Wellington had managed a REIT portfolio for Mass PRIM valued at $163m and the REIT manager had run a portfolio made up of 95.2% of US REITs and 4.8% in non-US securities.
These assets will now be sold by the pension fund through State Street's transition management group and the proceeds will be transferred to European, an existing Mass PRIM REIT manager to give the firm management of a REIT portfolio valued at $258m.
Mass PRIM's rationale for the change in the REIT allocation is a desire to lower volatility in the overall real estate portfolio. And given that there is a shrinking US REIT universe and a growing international universe, the pension fund desires to align itself with the long-term market opportunity and further diversity its portfolio.
Mass PRIM has made two other changes to the REIT program: to lower the REIT target from 27% or $1.08bn to 20% or $797.7m.
The net asset value of the pension fund's REIT portfolio was $813m by the end of April.
Mass PRIM believes that the Housing Investment Trust deserves a new capital allocation based on its performance, By April, its current quarter return was 2.76%, which placed it 216 basis points above the Barclays Aggregate REIT benchmark. At the same time, its one-year return of 6.86% was 302 basis point ahead of the benchmark and its 7.85% return since inception was 160 basis point over the Barclays benchmark - making it the best performing manager in the pension fund's fixed income asset class.
Mass PRIM now has $97m placed with the Housing Investment Trust as it allocated $50m in June 2007.