Pennsylvania Public School Employees’ Retirement System (PSERS) is cutting its allocation to real estate to 11% from 12%, but will still be making some investments into the asset class.
The pension fund told IPE Real Estate: “PSERS has been working to lower the allocation to real estate since the end of the Great Recession. We were and still are over-allocated against our long-term targets.”
As of the end of of March of this year, the pension fund’s real estate portfolio – which currently makes up around 11.5% of the investor’s total plan assets – was valued at $5.9bn (€4.9bn).
Pennsylvania PSERS invests in real estate through two separate strategies, with private real estate making up 8% of the allocation and the balance being invested in public real estate through REITs.
Despite the over-allocation, the pension fund is still planning to invest additional capital into real estate.
“This will all be through re-ups with existing managers at this time,” Pennsylvania PSERS said.
Most of the pension fund’s recent property commitments have been with value-add and opportunistic commingled funds. So far this year, it has made commitments into AG Europe Realty Fund II, Ares US Real Estate Fund IX and Carlyle Realty Partners VIII.
The pension fund decided on the new targeted allocation for real estate, which takes effect on 1 October, based on the recommendation of its investment staff and its investment consultant, Aon Hewitt.
Pennsylvania PSERS is also changing its targeted allocation to private markets, similarly reducing its weighting to this asset class by 1%.
The 2% of total plan assets freed up will be moved into the credit-related asset class.
Boosting credit-related assets is seen as an improvement to asset allocation because of the relative attractiveness of private debt investment opportunities identified by staff, the pension fund said in a board meeting document.