UNITED STATES - The Employees Retirement System of Texas is to allocate an additional $285m (€227m) towards opportunistic and value-added real estate in the US and Europe next year.

It is expected to make three to six commitments to value-added strategies, accounting for the majority of the new capital ($240m), as well as one to three commitments to opportunistic strategies.

The pension fund, advised real estate consultant RV Kuhns & Associates, cited concerns over pricing in its decision not to allocate new capital to core real estate strategies.

The new allocation, revealed in board meeting documents, will bring Texas Employees' real estate exposure to almost $940m.

The pension fund had a total real estate portfolio valued at $654m at the end of June 2012, with total assets under management of $22.3bn. It currently falls far short of its long-term 8% targeted allocation to real estate.

Texas Employees intends to allocate the new capital to investment managers that have succeeded using lower leverage to achieve return targets and that do not have legacy issues in dealing with prior funds.

The pension fund will pay particular attention to managers' track records through different cycles and will opt for those with the ability to extract value from net operating income growth rather than through capital appreciation.

Texas Employees plans to focus on managers that are more direct operators than capital allocators. Among direct operators, it wants to focus on managers that possess specialised competitive advantages and have developed the infrastructure to handle institutional capital.

The pension fund said it would look at funds that invest in the US and Europe, with European subordinated debt under consideration. It is expected that the new allocations will continue beyond the 2013 financial year.

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