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Investors - MAY 22, 2018

Texas ERS plans to commit $550m to private real estate in FY 2019

by Jody Barhanovich

The Employees Retirement System of Texas’ targeted new real estate commitments for fiscal year 2019 are $550 million, according to a board meeting agenda for its May 23 investment meeting. The target commitments are part of the pension fund’s proposed ERS Private Real Estate Portfolio Annual Tactical Plan for Fiscal Year 2019.

For fiscal year 2019, the pension fund believes that opportunities to target noncore real estate will be the most attractive area in which to focus, similar to the strategy for the current fiscal year. In addition, opportunities in niche sectors (medical office, timber, agriculture and international core) in both the core and noncore space, including strategies with lower correlations to traditional core property, will be selectively reviewed, noted the documents. Additionally, staff will seek to continue to diversify and increase the portfolio’s international exposure closer to the target level of 30 percent of the private real estate portfolio.

Fiscal year 2018 commitments made through March 31, 2018, total $417 million to eight investments for Texas ERS. Seven co-investments were underwritten for the fiscal year through March 31, 2018.

All but two of the eight investments in fiscal year 2018 were noncore commitments to successor funds of existing managers. An additional $12 million commitment was made to an existing core portfolio of New York City retail assets. A co-investment of $5 million was made alongside a Pan Asian fund to invest in an office development in the Philippines.

The expected total commitments will not exceed the upper range of the original commitment target of $787 million for fiscal year 2018.

As of March 31, 2018, the value of the private portion of the real estate portfolio was approximately $2 billion. And as of March 31, 2018, the current private real estate portfolio stood at 6.9 percent of the overall system’s assets, below the revised target of 9 percent.

“With this proposed commitment amount, ERS should continue its ‘steady state’ real estate allocation going forward and eventually increase the weight to the target weight,” the pension fund stated.

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