The Oregon Investment Council plans to overweight its real estate portfolio with industrial properties — by investing in joint ventures.
Many public pension plans are underweight industrial compared with the NCREIF Fund Index – Open End Diversified Core Equity, said Christy Gahr, principal and real estate consultant at Meketa Investment Group Inc. The reason is that industrial portfolios are smaller, Ms. Gahr said. "It's hard to invest at scale," she added.
There has been a lag in the amount of time it has taken for pension plans to adapt to what has been a very positive industrial market, she said. It can take longer than anticipated to meet the benchmark because of the relatively small size of the investments and investors have had to think outside the traditional commingled funds or separate accounts, Ms. Gahr said.
The Oregon Investment Council, Tigard, which runs the $79.1 billion Oregon Public Employees Retirement Fund, in 2019 committed $250 million to a joint venture to invest in industrial real estate with LBA Realty LLC.
The joint venture "is a creative way to enable a smaller component of the (real estate) portfolio," said Anthony Breault, senior investment officer, real estate, during a real estate portfolio review at the council's March 11 meeting.
In the joint venture, Oregon will pay carried interest for value-added investments. However, the portfolio is expected to be predominantly core-orientated, which does not pay carried interest and has "a very reasonable management fee," Mr. Breault said.
He added that this will be a model for such real estate investments going forward.
In 2019, Oregon commitments were overweight industrial as well as niche real estate, Mr. Breault told the council. Indeed, the council's long-term real estate plan calls for overweighting industrial as well as multifamily, he said.
At the recent council meeting, Oregon's real estate consultant noted that the office sector could be impacted by the coronavirus crisis.
"Meketa and Callan and many other consulting firms have everybody at home today … and so that will make people think a little differently about their office needs," said David Glickman, Portland-based executive vice president at Meketa Investment Group, Oregon's real estate consultant.
However, the issue with future real estate investments across sectors will be the denominator effect as equity markets fall, buoying alternative investment actual allocations, including real estate, Ms. Gahr said.
During Mr. Brealt's presentation, he mentioned the issue, saying that with equities falling, "we'll see where we end up in allocation bandwidth" in real estate.