Investors - NOVEMBER 4, 2014

Hawaii Employees invests in real estate and infrastructure

by Reg Clodfelter

The $14.1 billion Employees Retirement System of the State of Hawaii has committed $105 million to real estate, divided among three separate managers, and made its first ever infrastructure investment, a $50 million commitment to KKR Global Infrastructure Investors II.

The real estate capital was doled out as follows: $40 million went to both AG Core Plus Realty Fund IV and Almanac Realty Securities VII, and $25 million went to Prudential Senior Housing Partners V.

“All three of these funds were re-ups for us,” says Vijoy Chattergy, chief investment officer with HIERS. “Core-plus is a value-add play for us in our fund strategy, and the Almanac and Prudential funds represent slightly more novel approaches to getting real estate exposure, whether to a specific sector or through a lending vehicle, so all three commitments fit with the ongoing profile of our real estate portfolio.”

At 72.5 percent on a committed basis, the retirement system is slightly overweight to core real estate, which has a target allocation of 70 percent. HIERS has a target allocation to value-add real estate of 20 percent of its real estate portfolio and a target to opportunistic real estate of 10 percent of its portfolio. Value-add and opportunistic real estate are currently at 19.4 percent and 8.1 percent allocations, respectively.

The commitment to KKR’s Global Infrastructure Investors II, which HIERS will house in its real return bucket, is the retirement system’s first ever infrastructure play. The fund, which also received Merced County (Calif.) Employees’ Retirement Association first ever infrastructure investment in September, is a $2 billion fund whose predecessor targets a wide range of global infrastructure including midstream energy, renewable energy, utilities (water, power and gas), social infrastructure and select transportation-related infrastructure.

“We liked that the fund has a good income component to it, it has reasonable leverage, and we liked the deal pipeline, the propriety resourcing if you will, that KKR was able to bring to the table,” Chattergy adds.

HIERS will likely make two or three new commitments to infrastructure funds in the next 12 to 18 months, according to Chattergy.

Prudential’s SHP V, launched earlier this year, is a value-add vehicle that targets senior housing properties across the United States. Its predecessor received $20 million from HIERS in 2012, according to IREI’s FundTracker Database.

Angelo Gordon’s CPRF IV invests in subperforming office, retail, apartment and industrial real estate, predominantly in the top 15 U.S. markets, and will not invest in development projects. HIERS’ past commitment to the fund series was a $25 million investment in Fund III in 2012.

Almanac Realty Investors’ ARS VII is a $1 billion debt fund targeting U.S. investments and value-add level return. HIERS committed $20 million to Fund VI in 2012.

The pension fund has a total target allocation to real estate of 7 percent of its total assets, and has currently allocated 6.8 percent of its total assets to the sector.

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