US – Several large public pension funds are preparing to jump into publicly traded real estate securities (REITs).
Industry insiders are predicting that $500m (€422m) of new capital will be invested in REITs by public pension funds over the next few months.
The California-based $4.9bn Sacramento County Employees Retirement System was a recent entrant. The pension fund has allocated 3% of its total assets to a REIT programme. The Los Angeles Fire & Police Pension System and Los Angeles City Employees Retirement System are about to follow.
“We made the decision to invest in REITs as a way to get a more diverse real estate portfolio and achieve some liquidity,” said Sacramento County chief investment officer Jeffrey States. “It will also get us into some property types that we wouldn’t be able to do on our own.”
He was referring to the super regional malls that are owned by the likes of General Growth Properties and trophy office buildings held by a variety of REITs.
Sacramento County intends to make a final decision on appointing its first two REIT managers sometime in December. It sent out a request for information (RFI) in early October through its consultant, Mercer.
The RFI is being handled by Alison Yager, who covers real estate for Mercer out of its Atlanta office. She said that 16 to 20 RFIs had been sent out, the responses were back and were being reviewed.
Yager will discuss the responses at the pension fund’s board meeting on 17 November. Each adviser hired will be awarded a $50m allocation and have full investment discretion. Sacramento County will hire a third manager sometime in 2006.
The pension fund has a real estate allocation of 15%, but up to now it has invested 10-11% of its total assets in real estate as it has failed to find the opportunities to match its allocation.