Arizona State Retirement System is taking the first steps towards creating a separate-account real estate program. The concept has become rare in the US. The pension fund has decided to appoint Lincoln Advisory Group as its manager for office buildings and Kennedy Associates Real Estate Counsel and TIAA/CREF for industrial buildings.
Arizona State has allocated $100m (e82.6m) to Lincoln for investing in office properties. Kennedy and TIAA/CREF will get $50m each for industrials.
The pension fund anticipates that the funding for the separate accounts will occur sometime over the next 12-24 months.
The pension fund still has not decided on its managers for retail and apartment sectors. The allocations for these accounts are $198m for retail and $158m for apartments. Another $39m has been set aside for a further, undisclosed property type.
New separate-account programs in the US are few in number. One other example is the new program established by Illinois State Board of Investment. This pension fund hired Clarion Partners and CB Richard Ellis Investors last summer. Each manager was awarded a $300m allocation.
Many of the large public pension funds around the country are choosing not to create new separate-account programs. And a substantial proportion of the top-performing separate-account managers are not responding to new searches. These managers now have too much capital to place in the market and are not interested in receiving fresh mandates.
The Arizona State separate-account program is the brainchild of Cesar Porte, the pension fund’s real estate portfolio manager. He believes that it makes sense to have one or two managers covering each of the four main property types.
Mr Porte ran the same kind of real estate investment program very successfully with the Oregon Public Employees Retirement System. Oregon now has General Investment & Development for apartments, Lincoln Advisory Group for industrial, The Lionstone Group for office buildings and Regency Centers for retail.