Investors jumping at diversification into global real estate

International real estate increased as top 200 defined benefit plans took advantage of new international funds in the market, hoping for a boost in returns.

International real estate increased 24% to $19.4 million, according to Pensions & Investments’ 2008 Top 200 pension plan survey.

Investment in international real estate skyrocketed dramatically at a number of defined benefit plans among the top 200. International real estate grew 117% to nearly $2.6 billion at the New York State Common Retirement Fund; 71% to $743 million at the North Carolina Retirement Systems; 19.5%, to $526 million at the New York State Teachers’ Retirement System; and 88% to $47 million at the School Employees Retirement System of Ohio.

Most investors pursue international strategies for performance reasons, said Jay Kloepfer, director of capital market research at Callan Associates Inc., San Francisco.

For instance, a new category in the current survey, international private equity, accounts for $22.5 million or about 10% of the total private equity investments reported. If fundraising data is any guide, international private equity investment will continue to grow. In 2008, $235.8 billion was raised for private funds focusing on the Europe, Asia and the rest of the world, according to London-based Preqin, an alternative investment research firm.

International real estate and private equity also were used to diversify the portfolios, not as a hedge but rather as a way of getting excess returns by including non-U.S. investment, said Mark Ruloff, director of asset liability at the Arlington, Va., office of Watson Wyatt Worldwide. Unfortunately, in 2008 international and domestic investments moved down together.

Another possible reason for the increase in the data reported for the survey is that a larger number of international private equity and real estate funds were raised in the past few years and they started investing capital in 2008, said Tom Bernhardt, director of research at PCG Asset Management, a La Jolla, Calif.-based alternative investment consulting and funds-of-funds investment management firm.

For example, the number of — and amount of capital raised or sought for — non-U.S. buyout funds came close to the number of — and amount raised for — U.S. buyout funds in the 12 months ended Sept. 30, according to data provided to Pensions & Investments by Preqin.