Ohio Public Employees Retirement System could become under-allocated to real estate as it acknowledges the difficulty of investing in the asset class today without taking undue levels of risk.
In a board meeting report, the $83.7bn (鈧�68.7bn) pension fund said: 鈥淭he challenge for staff is to find new opportunities that have desirable expected returns at acceptable levels of expected risk鈥�.
Its investment consultant Aon also stated in the report that 鈥渞edeploying capital is more challenging at current point in the cycle鈥� without adding more risk and that this might 鈥渃ause allocation to fall below target鈥�.
Ohio PERS鈥檚 most recent figures show that its private real estate allocation fell from 9.42% at the end of June last year to 9.16% at the end of Septmber, below its 10% target.
The pension fund had planned to make more than $1bn of direct real estate acquisitions and invest $500m in closed-ended real estate funds in 2017. But figures for the first three quarters of the year show that it only bought $341m of direct property and failed to make any fund commitments. It did manage to redeem $150m from core open-ended real estate funds.
Ohio PERS was actually a net seller during the nine-month period, disposing of $361m of real estate held in separate accounts.
The pension fund said that, since 2015, it had 鈥渟old assets at high prices and realised gains鈥�, capitalising on 鈥渆xcess demand for stablised, core properties鈥�.
Ohio PERS had expected a correction in the US real estate market in 2017, but it now believes the market will continue to plateau, according to the report. 鈥淗owever, staff does not see a near-term catalyst that would cause property values to decline,鈥� it said.
For future investments, the pension fund is focusing on debt and preferred equity, select development opportunities, and secondary-market transactions.
鈥淪taff believes these strategies will enable the portfolio to achieve its performance objective and also provide a degree of downside protection during a market correction,鈥� it said.
