US - The Tennessee Consolidated Retirement System is looking to invest as much as $460m (€355m) in non-core real estate in either value-added or opportunistic strategies.
Michael Brakebill, CIO at the Tennessee Treasury Department, said the pension fund was moving forward in this area to improve its risk/return characteristics.
Up to now, the fund has focused on core real estate, investing through five separate account managers: Clarion Partners, JP Morgan Asset Management, TA Associates, Cornerstone Real Estate Advisers and RREEF.
For the most part, Tennessee's portfolio is made up of office, industrial, retail and apartments spread out across the US.
The pension fund's only other real estate assets are $117.2m invested in two commingled funds that own industrial properties.
Tennessee will be looking at placing the capital in the non-core sector in two ways.
Brakebill said the pension fund had excellent relationships with a very high-quality group of separate account managers.
"We foresee continuing to expand our relationships with those advisers," he said. "We may also be utilising new managers in certain cases."
The pension fund will be considering all structures for the non-core investing. This would mean a potential mixture of either commingled funds or separate accounts.
The value-added/opportunistic strategy could take many forms, such as buying properties needing a capital infusion, or investing in a property with some leasing issues.
Tennessee still has a ways to go before it reaches its 7% targeted allocation for real estate.
The current real estate portfolio stands at $1.2bn, or 3.3% of the pension fund's $33bn of total plan assets.
The fund has split real estate investing into two main components - the core sector is set at 80%, or $1.8bn, while the non-core is set at 20%, or $460m.
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