Michigan Municipal Employees' Retirement System, Lansing, is searching for a manager to run $130 million in private real estate investments in Michigan, Jeb Burns, chief investment officer, said in an interview.
A formal RFP has not been issued; interested managers should contact MERS' staff directly.
Trustees of the $6.5 billion system at a Tuesday meeting approved a staff recommendation to reduce the system's target allocation to private real estate to 2% from 3% of plan assets and revamp the portfolio over the next three to five years.
The new portfolio will have about 75% of assets in Michigan properties, with the rest in opportunistic real estate deals with no geographic restriction.
“This is really kind of a distressed play,” Mr. Burns said, noting that direct and co-investment real estate deals will be sought.
Townsend Group currently manages the system's private real estate portfolio and also serves as its real estate consultant. Mr. Burns said Townsend Group has assisted internal investment staff in researching the Michigan real estate concept, but likely will not remain involved in managing the private real estate portfolio.
Mr. Burns said he expects that a private real estate manager will be selected at the system's March 13 meeting.
Separately, Mr. Burns said a strategic review of the fund's 25% fixed-income portfolio and its high-yield bond portfolio, now at a 5% target, will result in a recommendation to combine the two portfolios into a single 30% allocation.
Trustees will consider the recommendation at the system's March 13 investment committee meeting. If approved, manager changes are likely, Mr. Burns said.
Details about the fixed-income allocation are being hammered out, but Mr. Burns said he anticipates that that the system's core investments likely will be increased and that fewer managers will be given larger mandates to invest in “safe,” liquid securities.
The balance of the combined portfolio will expand beyond the current high-yield investments to include a broader range of credit opportunities, such as distressed debt, bank loans and leveraged loans.