PROVIDENCE, R.I. -- The tiny real estate program at the Employees Retirement System of Rhode Island could end by next year -- or it could pick up steam.
While there had been talk of phasing out the fund's real estate portfolio as its investments mature, Paul J. Tavares, who became state treasurer in January, said, "We will assess our appetite for future investments. If there are opportunistic situations that are in real estate, we would take a look."
Even so, he added, "I'm not sure how aggressive we'd be. The pension fund took a non-aggressive posture toward real estate in the '90s."
The $6.3 billion fund's real estate portfolio is invested in 10-year-old partnerships scheduled to mature within the next year or so. Mr. Tavares, a Democrat who served as state senator for six years and sat on the pension fund's investment board, noted that real estate is only 1.1% of fund. It has not been a priority. Nor does he expect it to be in the near future.
At the February board meeting, it was decided to leave the allocation as is for the foreseeable future.
Staff disagreement
A person with knowledge of the situation said there had been a disagreement among the staff about phasing out real estate. Former Treasurer Nancy J. Mayer had not favored real estate, while former Deputy Treasurer Jim Thorsen wanted to increase real estate investments. At one point the fund is believed to have considered selling some of its commingled funds, but in the end decided against it. As a result of the dissension over the real estate allocation, no new investments were made in the last decade. Yet, another source said that fund officials have been actively looking for opportunistic real estate situations, with good terms, but have not found any.
Two years ago, the system decided to roll real estate into its private equity allocation because both were opportunistic. The target allocation to private equity was raised to 7.5% of fund assets from 5%, and real estate was targeted at 2.5%.
But as of Dec. 30, private equity was only 2% of assets; real estate, 1.1%.
Mr. Tavares said he wants to familiarize himself with the pension fund before making any major decisions. He plans to review the assets of the entire portfolio as well as all the investment managers. He hasn't decided whether to commission an asset allocation study.
Deputy treasurer search
The pension fund, meanwhile, is searching for a deputy treasurer who will help oversee the pension plan.
One of Rhode Island's long-term real estate investments -- the Aetna Congregate Care Fund, managed by Allegis Realty Investors -- matured at the end of 1998. But the other partnerships could take as long as two years to exit because of problem properties in certain portfolios, said someone familiar with them.
The internal rate of return on the Allegis fund for the year ended Sept. 30 was 15.06%.
Rhode Island's investments with Heitman Capital Management Corp. returned 10.38% for the year ended Sept. 30; its investments with L&B Realty Advisors Inc., 24.22%; and Phoenix Realty, 33.99%.
The aggregate return for the pension fund's real estate portfolio for the year ended Sept. 30 was 16.24%.
