The Pennsylvania Public School Employees Retirement System is nearly halfway to meeting its 2024 real estate annual pace goal with a single commitment.
The pension fund's board of directors approved a $300 million contribution to Washington, D.C.-based Carlyle's 10th opportunistic real estate fund, Carlyle Realty Partners X, at its May 30 meeting.
The commitment represents nearly 40% of PSERS' $800 million tactical annual pace target for real estate in 2024. The pension plan projects the annual pace of this asset class to be in the range of $800 million to $1 billion through 2032. But “actual commitments in 2024 are expected to be below this range,” PSERS portfolio manager Jarrett Richards and senior portfolio manager Melissa Quackenbush wrote in their CRP X recommendation.
CRP X marks PSERS' second commitment to an opportunistic real estate fund in the past year, following a $300 million investment last August in Toronto-based property management giant Brookfield's Brookfield Real Estate Partners V. Carlyle's fund will focus primarily on a broad range of U.S. property types, according to consulting firm Axia, which recommended the fund to PSERS in April.
“CRP generally focuses on the acquisition and development of single property assets in the mid-market, resulting in a fund that is diversified in terms of asset count,” Aksia said in the recommendation.
Carlyle Realty Partners X is an opportunistic fund that launched in January with a goal of raising $8 billion. Askia said Carlyle plans to hold the fund's first and final closing on June 30.
The commitment comes as PSERS is slightly over-allocated to real estate, currently making up 8.1% of its portfolio, versus a target of 7%, according to a board meeting document dated May 30. But James Del Gaudio, head of private markets at PSERS, said the allocation is within the organization's 2% rebalancing band, or within acceptable valuation fluctuations.
“We've seen a slowdown in transaction volume across the real estate market, and we've certainly seen a slowdown in the pace of expected dividends over the last year or two,” Del Gaudio said, adding that PSERS' industrial and residential divisions have generally performed well in recent years.
As of last September, PSERS had roughly $8.2 billion in real estate exposure, according to a board meeting document dated May 30. The asset class had an annualized net IRR of 8.8% and a TVPI of 1.5x. Real estate outperformed the benchmark by 2.5% over the past decade, but underperformed by 0.2% in the 12 months ended Sept. 30.
Del Gaudio did not provide details on how PSERS plans to allocate the remaining $500 million outlined in the Pace goal.
PSERS, the 20th largest public pension plan, is ranked 81st on PERE's Global Investor 100 rankings. The plan manages more than $77 billion in assets, about 30% of which is invested in real estate, conference documents show. In addition to investing in Brookfield last year, PSERS also agreed in August to invest $200 million in TCI Real Estate Partners Fund IV, London-based investment firm TCI Fund Management's newest fixed-income fund.