UNITED STATES - Teacher Retirement System of Texas is making new investments of its capital in public real estate as the sector is said to be showing signs of good returns.

At least $175m (€m) of capital has been allocated to the Security Capital Income Opportunity Fund - an investment management agreement within which Texas Teachers is the only investor.

The strategy is to purchase preferred and convertibles in public real estate securities, and Texas Teachers officials believe this will present an attractive risk-adjusted return of 12% IRR net.

Texas Teachers has also approved a transition allocation to REITs worth 2% of the pension fund's $80.7bn in total assets as officials feel REITs will give it broad diversification of property types and geography, along with the added benefit of liquidity.

REITs are currently managed internally by the pension fund's investment staff, and as part of its real estate portfolio.

On a long-term basis, the pension fund has established a 10% targeted allocation to real estate.

The pension fund invested $3.55bn, or 4.4% of its assets, in real estate to the end of March 2009 but Texas Teachers has set a goal of 5% of its assets in real estate by the end of 2009.