UNITED STATES - Ohio Public Employees Retirement System is looking at creating an international REITs investment strategy.
The pension fund had this as an agenda item up for discussion at its board meeting on March 18 and 19, so while officials have yet to agree an allocation to international REITs this is likely to be decided in the near future.
The pension fund is working with its general consultant Mercer Investment Consulting and real estate consultant The Townsend Group and it is anticipated approval will be sought from the investment staff of Ohio PERS in the coming months.
The pension fund believes adding international REITs to its real estate portfolio would provide diversification in a global investment context because international REITs have a low correlation with the traditional assets classes and US real estate because real estate cycles do not move together across the globe, and some markets may therefore perform better, while others are not doing so well.
International REIT exposure would provide an opportunity for return enhancements to a domestic-only real estate portfolio as international REIT returns have outperformed all other major asset classes over the past four years, including the direct real estate markets.
Ohio PERS thinks the international REIT sub-asset class is still fragmented and believes there is potential for skilful active managers to exploit the inefficiencies in the market to generate positive alpha.
It's likely the pension fund would hire external managers for an international REIT strategy, so they may be selected through an RFP process, in the hope this would generate a long-term return in the range of 10% to 11% per year.
Some of the markets Ohio PERS would like to invest in include Japan, Singapore, Korea, Hong Kong and Europe as the fund already has an active REIT investment program in the United States through its defined benefit fund and health care fund.
At the end of 2007, the defined benefit fund had a REIT portfolio valued at $546m while the health care fund had a similar portfolio valued at $548.3m.