New Mexico State Investment Council has approved a one-off, debut investment in the REIT sector.
The sovereign wealth fund has earmarked up to $150m (€108.7m) for REIT issued preferred stock.
Vince Smith, deputy investment officer for New Mexico, said: “We think this type of investing can now produce a dividend yield in the 8.25% to 8.75% range. This is an attractive return for us.”
New Mexico plans to buy 20 to 25 preferred stocks from various sectors of real estate, including the office, mortgage and industrial sectors. The fund will focus on high quality securities and above average dividends. Funding for the $150m comes from the fixed-income asset class.
The sovereign wealth fund expects that an initial $100m will be invested, with more time needed to place the additional $50m. A benchmark for the REIT capital has not yet been established and the holding period for the REIT will depend upon interest rates.
“Where interest rates go could impact how long we hold onto them. Our opinion right now is they are going to rise slowly,” said Smith.
Most of the capital will be invested in REITs operating in the US, with European and Asian REITs potentially part of the investment programme, which will be overseen in-house.
Smith said: “This investment strategy doesn’t have a lot of liquidity - we look at them as acting like a bond in many cases. Given this scenario, we think that it works best if we have our own people overseeing of the investment process.”
New Mexico first considered real estate stocks in 2011, Smith said, with its investment board now more comfortable with the REIT space. The stock will be put in New Mexico’s real return portfolio, which now makes up 4.5% of its total holdings, with a long-term goal of 10% for real return assets. Assets include TIPS, floating-rate debt and infrastructure.