UNITED STATES - Yet another US pension fund has moved to reduce its allocation to real estate this year, as the State of Wisconsin Investment Board has cut its allocated capital by 14%.
The board responsible for the Wisconsin pension fund is expecting to commit between $700m (€452m) and $800m to real estate in 2008, compared with $912m invested in the assets class in 2007.
Pension fund officials are concerned about pricing issues on both the buying and selling of real estate and is wondering how the overall performance of the economy will affect the asset class.
That said, one of the markets where the pension fund will invest approximately $50m is senior housing as officials believe the demographics for senior housing are favourable now, given there is an increasing population of older Americans, a low current penetration rate in senior housing and a growing acceptance of senior housing by those in the targeted age group.
It is anticipated there will be a demand for higher quality facilities from busy ‘baby boomer' children, who are unable to take care of their parents themselves, but want quality care for relatives in their later years.
At the same time, Wisconsin is also looking at making a return to investing in core real estate, most likely initially through open-ended core funds.
The amount to be invested will depends on how much capital is returned from the current portfolio investments and therefore has yet to be determined, but pension fund officials think it makes sense to invest in core assets given the state of the real estate markets.
In this time of increasing volatility in the real estate arena, core products provides a safe harbor for investment dollars, according to experts, because the high percentage of total return comes from current income.