By David G. Barry
Mississippi
Public Employees’ Retirement System’s desire to reach its value-add real
estate target has led it to commit to a new fund from a longtime manager.
The PERS Board of Trustees approved a $75 million commitment to Angelo
Gordon Value-Add Fund XI, said Shelley Powers, communications director for
the $29.3 billion system. She said the decision was based on “Angelo Gordon’s
tenure, stability, and success in managing value-added real estate and along
with pacing projections indicating its necessity to achieve PERS’ 15% target in
value-add real estate.”
PERS has allocated 15% of its total real estate portfolio to value-add real
estate funds since 2011, according to a report presented to the board. As of
June 30, the value-add real estate segment was valued at $517.8 million, or 14%
of the total real estate asset class.
As of September 30, real estate accounted for $3.7 billion, or 12.6% of the
portfolio. That is above its 10% target. Domestic equity is the largest segment
at $7.2 billion, or 24.5% allocation.
That is below its 27% target. At $3.85 billion, private equity is at 13.1%,
well above its 8% target.
PERS’ value-add real estate portfolio consists of commitments to 17 funds with
six different general partner fund managers. Of those 17, nine are currently in
their liquidation phase and returning capital. Because of this, PERS said to
reach the 15% target, it needs to make two commitments annually – with each
commitment being $75 million.
Value-add real estate investment target
annual returns of 11% to 15% with in-place cash flows but seek to increase the
cash flow by making improvements to or repositioning the property. Value-add
investments, according to the report, typically generate higher returns than
core investments through an appreciation in asset value.
PERS has invested with Angelo Gordon Realty since 2006, having previously
backed four prior funds. Angelo Gordon is targeting $3.25 billion.
For the fiscal year ended June 30, PERS reported a gross return of negative 8.5%,
which beat its policy benchmark of negative 10.9%. Private equity was the
top-performing asset class at 26%, while real estate earned 22.8%.
PERS earlier this year elevated Charles Nielsen to chief investment
officer. Nielsen, who has been with PERS since 2006, replaced Robert Clark who
resigned in April to be closer to his family. He joined in February 2020.