Ohio School Pension Fund Tilting to Infrastructure

Officials expect the space to return 8%-10%, outperform commercial real estate by 200 basis points.

Ohio’s $14.3 billion school employees pension fund plans to mix things up in its real assets portfolio.

The Columbus-based Ohio School Employees Retirement System will exit some commercial real estate allocations and put the money into infrastructure investments, according to its fiscal 2020 investment plan. This will bring infrastructure to 21% of the portfolio, from 17% (real estate takes up the rest of the portfolio). The rebalance will be about $100 million and occur over the next 12 months, as part of its fiscal 2019-2020 plan.

The fund, which has been making additional real estate/infra switches over the past three years, expects its infrastructure to produce 8%-10% returns, which the report says would outperform commercial real estate by “approximately 200 basis points.” It will keep its current mix of real estate investments, which includes industrial and specialty real estate such as student and senior housing, as well as office and retail holdings.

Real assets were about 14.6% of Ohio SERS’s total portfolio as of April 30. The rest was in global equities (46.6%), global fixed income (15.1%), global private equity (9.8%), multi-asset strategies (7.9%), cash equivalents (3.3%), and opportunistic and tactical strategies (2.6%).

Asset rebalances happen frequently, but more so lately among pension plans. Many pension plans have been more active in that area as of late as economists and institutional investors are expecting a recession within the next year or so.

The Los Angeles Country Employees Retirement Association said in April it would cut $1 billion in real estate as part of its restructuring. That same month, Norges Bank, Norway’s $1 trillion sovereign wealth fund, cut back on real estate and ended its property arm.

Neither the fund nor Farouki Majeed, its chief investment officer, could be reached for comment.

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