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Phoenix commits $50 million to real estate, overhauls asset allocation

Phoenix City Employees’ Retirement System made two value-added real estate fund commitments of $25 million each, said Greg Fitchet, investment officer.

The $2.3 billion pension fund committed to Focus Healthcare Partners Fund I, which invests in senior housing, and Hammes Partners III, which invests in medical office buildings, Mr. Fitchet said.

Real estate consultant Alignium assisted.

The pension fund also approved at its meeting April 6 redeeming a $150 million hedge fund-of-one separate account managed by Pacific Alternative Asset Management Co. The pension fund’s general investment consultant, Meketa Investment Group, recommended the redemption from the strategy due to the February announcement of the merger of PAAMCO and KKR Prisma into a new firm.

Meketa in a memo also cited the pension fund’s recent drop in the target allocation to hedge funds to 5% from 15%, approved at the pension fund’s March 10 meeting following an asset allocation study.

Other target allocation changes are the creation of new targets of 8% to emerging markets equities, 7% to Treasury-inflation protected securities, 5% to high-yield bonds, 4% each to infrastructure and natural resources, and 3% to bank loans.

The pension fund is also eliminating the 8% target to global tactical asset allocation strategies.

Other target allocation changes are, within its equities category, dropping the targets to domestic equity to 16% from 18% and international developed markets equities to 9% from 16%, and increasing private equity to 9% from 3%.

The TIPS target joins investment-grade bonds in the pension fund’s total rate-sensitive category, with the latter being decreased to 15% from 20%.

High yield and bank loans join emerging markets debt in the total credit category, with emerging markets debt dropping to 3% from 5%.

Infrastructure and natural resources join real estate in the real assets category, as real estate drops to 12% from 15%.

Beyond the PAAMCO redemption, how the new target allocation will be implemented has yet to be determined.

As of Feb. 28, the actual allocation was 25.6% domestic equity, 17.5% international equity, 15.5% domestic fixed income, 14.2% real estate, 11.1% hedge funds, 7.4% real return, 4.6% emerging markets debt, 2.8% private equity and the rest in cash.