Massachusetts Pension Reserves Investment Management Board (Mass PRIM) has concluded that it can improve the risk-return profile of its real estate portfolio by cutting its exposure to real estate investment trusts (REITs).

A review by the $71.7bn (€63.2bn) pension fund found that REITs offer fewer diversification benefits relative to private real estate, are highly correlated to public equity markets and have higher volatility than private real estate.

According to a board meeting report, Mass PRIM believes its $6.85bn real estate portfolio would be enhanced by reducing its REIT exposure in favour of private real estate.

The pension fund has adjusted its real estate portfolio ranges, allowing it to invest fully out of REITs.

REITs can now represent 0-30% of the real estate portfolio and private real estate. Previously, the lower limit was 10%.

The shift has implications for Mass PRIM’s REIT portfolio which stood at $1.5bn at the end of last year, representing approximately 22% of real estate portfolio.

Mass PRIM has three REIT fund managers: CenterSquare Investment Management, Presima and Brookfield Asset Management.

The pension fund also said it will evaluate investments in speciality property types, beginning with senior housing.

In the current year, Mass PRIM has set aside $200m to be placed with its long-term separate account managers AEW, Invesco Real Estate and LaSalle Investment Management.

The three managers will also be active sellers, Mass PRIM said, and plan to dispose of seven properties leading to sale proceeds of about $541m.

Mass PRIM acquired a total of six properties in 2018 through its separate accounts for $449m and sold five properties for $401m.