UNITED STATES - Washington State Investment Board has dropped the NCREIF Property Index as the return benchmark it applied to its real estate portfolio.

The previous returns benchmark has been replaced with one better matching Washington State's aims as it is set to deliver an 8% annual investment return over a rolling 10-year period.

According to pension fund officials, it felt the NCREIF Property Index no longer matched the investor's overall investment strategy as real estate performance for the fourth quarter of 2009. Data shows the pension fund returned -1.65% in Q4 yet NCREIF delivered a -3.7% return.

Another key factor is the benchmark change Washington State's real estate portfolio contains non-core holdings, but the NCREIF only tracks core assets, so fair comparisons are difficult.

Some of the non-core assets include investments in real estate debt, manufactured home communities as well as international real estate.

Pension fund officials say the new benchmark is likely to achieve the expected level of a return from its real estate assets. However, the pension fund's board and investment staff did not believe there was a real estate index in existence which matched the structure of its real estate portfolio and therefore opted to target a certain return rather than apply another index as its new benchmark.

The pension fund is now over-allocated to real estate as it has invested $7.7bn (€5.7bn) in the asset class, or 14.5% of its $53.4bn in plan assets in real estate. The targeted allocation is 13.2%.