GLOBAL - The $22.9bn (€15.8bn) Employees Retirement System of Texas will shift the emphasis of its property portfolio from core to value-added and opportunistic next year in a bid to exploit a recovery lag in riskier real estate.

Outlining the portfolio strategy for 2012 at a meeting last week of the investment advisory committee, real estate director Robert Sessa said last year's investment in open-ended core funds had captured a significant upside with the rebound in core pricing.

"Significantly, there was no J-curve effect," he said.

But he said over the next year the scheme would begin to allocate to value-added and opportunistic real estate.

"Non-core has flatlined as banks and other investors work out their real estate, which gives us an opportunity selectively to purchase these assets, work on them and sell them to core investors," said Sessa.

"When everyone is rushing away from the market, that's when the best opportunities arise."

Within the allocation, 42% of real estate investment will be focused in the US, 35% in Asia and 10% in continental Europe.

Dan Krivinskas, an external adviser to the scheme, noted "aggressive competition for core, much less for non-core". 

However, Sessa said he had not ruled out investing in core if opportunities arose in alternatives such as timber or agriculture.

The scheme has already shifted selectively up the risk curve. The $485m invested in the year to June included investments in an emerging managers funds and a European mezzanine debt fund.

The scheme currently has 3.4% of its portfolio allocated to real estate, against an 8% target comprising 75% private and 25% global listed real estate.

Presenting figures for the last quarter, the investment committee acknowledged that domestic and global REITs had outperformed benchmarks.

But, in line with the emphasis on value-added and opportunistic investment, the emphasis for next year will be on private real estate.

The scheme has invested $685m in private real estate since the programme's inception in January 2010.

Sessa said the scheme would continue to avoid cyclical assets.

"We don't want to get too cute on cyclicality, but we don't own hotels because they're cyclical," he said.