Ohio Public Employees Retirement System (PERS) is planning to reallocate capital from its real estate separate accounts to open-ended property funds – at a time when many other institutional investors are withdrawing capital from such vehicles.
The pension fund disclosed in a meeting document that it intends to increase its exposure to open-ended funds so that they represent 40% of its $11.8bn (€10.9bn) real estate portfolio – up from the 25% it constitutes today.
The increase will come at the expense of separate accounts which currently account for 60% of the property portfolio.
Ohio PERS told IPE Real Assets: “We anticipate making a shift to allow our separate accounts to focus more on opportunistic investments. Much of the core/core-plus capital in those programmes is likely to be reallocated to open-end fund structures.”
Ohio PERS said it would maintain its 15% weighting to closed-end real estate funds.
The move to increase exposure to open-ended property funds comes at a time when such vehicles in the US have been experiencing net outflows.
The NCREIF Fund Index – Open‐end Diversified Core Equity (NFI-ODCE), which tracks 26 open-ended core funds with $332bn in gross asset value, experienced net outflows of $2bn in the first three months of 2023 and $1.1bn in Q4 2022.
Contributions to open-ended core funds in Q1 2023 fell by 52.7% compared with the previous quarter, the longest since the global financial crisis, NCREIF said.
Industry sources described Ohio PERS’s decision to increase investments in core and core-plus funds at a time when other pension funds were redeeming from funds as contrarian.
Conversely, in 2012 the pension fund redeemed $300m from the open-ended UBS Trumbull Property Fund – at a time when the fund was reported to have an investment queue of more than $2bn. The transaction produced a 29.9% total net return for the pension fund.
Increasing its investments in open-ended funds could also help increase Ohio PERS’s weighting to industrial real estate. Industrial currently accounts for 17% of its real estate portfolio, which is lower than 30% exposure of the NFI-ODCE index.
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