US - Teacher Retirement System of Texas is planning to allocate 10% of its portfolio assets in real estate.
Speaking about the move, Rob Kochis, principal with The Townsend Group which acts the Texas Teachers real estate consultant, said: "The pension fund hired Britt Harris as its new chief investment officer late last year. He felt that it would be better for the pension fund to invest more capital into real estate and other real assets to achieve higher levels of diversification for its entire portfolio. This is why it came up with a new allocation."
The Texas Teachers scheme made the decision at its April board meeting to create a "real assets" class with a targeted allocation of 15%. This will be split to place 10% in real estate while the remaining 5% will be invested in other real assets such as commodities, infrastructure, agriculture and timberland.
This new real estate allocation for real estate translates into $11bn ($8.1bn euros) to be invested in real estate over the next four to five years. Texas Teachers has committed $2.5bn to real estate investments over the past 12 months, based on the pension fund’s initial targeted allocation of 3%.
Texas Teachers will be working with Townsend to look at diversifying investment structures for real estate to reach its target allocation as the pension fund had been strictly investing in commingled funds until now.
"Some of the ideas that we will be discussing with them are operating JVs, separate account relationships and investing in public REITs," Kochis said,
Texas Teachers will be looking at two commingled funds for its meeting on May 11, including a possible commitment into the Cypress Real Estate Advisors-sponsored Cypress Fund VI.
This is Cypress’s first institutional fund and has a total equity target of $500m through a value-added strategy in retail and residential properties.
The other fund being considered for a possible $100m commitment is the Forum Asian fund, a $600m commingled fund focused on entity-level investments in Asian-based companies being raised by Forum Partners.