BOISE, Idaho - Robert Maynard, chief investment officer of the Public Employee Retirement System of Idaho, is completing his overhaul of the $5.6 billion fund by increasing real estate and private equity allocations.
When Mr. Maynard took over the fund six years ago, he inherited several blind commingled real estate funds, which he has been selling off ever since. As a result, the real estate component has shrunk to 1% from 10%.
Now he is in the process of building it back up to 3%, and also increasing the fund's private equity allocation to 3% of assets from its current 1% to 1.5%, Mr. Maynard said in an interview.
Six years ago, the Idaho system had a complex structure that Mr. Maynard simplified by eliminating real estate and small-cap equities as separate asset classes and including them as part of broader equity or fixed-income classes. In addition to slashing real estate holdings, he also terminated many regional money managers for numerous overseas strategies, because it was too confusing, he said.
Asset allocation was changed as well. Equities were increased to 70% from 55% and within that, domestic equities were raised to 55% from 45% and international, to 15% from 10%. Fixed income was reduced to 30% of the total fund from 45%.
"To get a real return of 5%, you need to have 70% of the fund in equities," Mr. Maynard emphasized. As a result of his changes, the fund's assets have ballooned 400% in the past six years, to $5.6 billion from $2.1 billion.
More recently, Idaho has hired Chadwick, Saylor & Co., Los Angeles, to act in an advisory capacity for the fund's real estate investments, Mr. Maynard said. It also has hired Hamilton Lane Advisors, Philadelphia, to oversee the private equity component. Mr. Maynard emphasized that to him, private real estate and private equity are similar, and he has asked Chadwick to integrate the two for the fund.
The system also is about to hire Lend Lease Real Estate for a strategy that can move between public and private real estate, as the market dictates.
"Pension funds don't integrate real estate with private equity, but as far as I'm concerned they are the same. Yet there are two different groups of people who analyze these, they each talk a different language, and it's hard to get an analysis across both asset classes that looks at risk-return," Mr. Maynard said.
Paul Saylor, managing director at Chadwick, Saylor, agrees with Mr. Maynard. "Bob sees private real estate as part of private equity, and I've been saying that for 10 years."
Mr. Maynard, he added, has an unconventional view of real estate, which is why the fund's performance in the portfolio is improving. "Bob doesn't want to just park his money in some real estate and then wait for years to see what happens. Instead, he wants superior performance from his real estate. And if he doesn't get it, he figures why bother to own it?" Mr. Saylor said.
The Idaho CIO expects managers to look forward so trends and events can be anticipated, Mr. Saylor said. As a result, Chadwick Saylor is studying Idaho's remaining real estate positions to determine whether they should be held or sold.
Chadwick Saylor primarily is a real estate boutique investment banking firm, but it has an investment management arm specializing in special situations, which is where the Idaho activity falls, Mr. Saylor explained.
For his part, Mr. Maynard emphasized he never again would participate in blind commingled funds. He inherited them when he became CIO of the Idaho system six years ago.
"There have been a lot of major changes in (the blind funds) since 1992," he griped. "Management changed radically at many. And the nature of core real estate was changed by the public markets. People owning core real estate (direct investments) were at a real disadvantage. REITs took off, while we were stuck with the commingled pools."
In the past four years, Mr. Maynard got out of most of the real estate funds owned by Idaho, and put the money into U.S. equities. He's been particularly pleased, he said, with the results from recent sales of the real estate funds, as the market has improved. And now he's ready to expand real estate holdings again. "If a pension fund doesn't put at least 3% of assets into real estate, it can't support an infrastructure (consultant) to deal with it, so the board ignores it and it falls off the radar screen. We want to be back at that 3% so when the market settles down, we'll be ready to buy."
Idaho will fund the real estate and private equity investments from its domestic equity holdings.
Chadwick Saylor is authorized to bring Idaho investments and managers that fit the system's requirements, in terms of risk, return and cash flow, Mr. Maynard said. "Paul (Saylor) brought us Lend Lease."
Mr. Maynard added he is interested in the real estate investment trust market now as valuations have fallen. He was in no rush to buy REITs before, because he felt they were overvalued.
The private equity component is newer, and is just being built up, he added. "We have some limited partnerships and are adding new partnerships," Mr. Maynard said.
He declined to name them, but said the Idaho strategy is to invest in later-stage projects. The fund does not have many investments in early seed ventures, nor does it buy into highly leveraged deals.
