ERS real-estate portfolio lags
By Deborah Adamson
Advertiser Staff Writer
A poorly performing investment manager hurt the state pension fund's real-estate returns last year, which lagged the market.
The Employees' Retirement Systems had a total return of 7.76 percent in 2003 on its real-estate investments, compared with 8.99 percent for the NCREIF Total Index, considered the benchmark by which other real-estate investments are measured. Real estate comprised $603.7 million out of $8.5 billion in total assets for the state pension fund.
In the quarter ended Dec. 31, the return was 2.24 percent vs. 2.76 percent for the index.
"It trailed the index, but it was about median with the peer group," said Kimo Blaisdell, the pension fund's chief investment officer. "We are seeing some improvement."
The pension's real-estate return fell into the 53rd percentile in the second quarter, meaning about half of its peers did better and half performed worse. That's an improvement over the first quarter, when two-thirds of its peers outperformed the ERS.
The ERS has spread its real-estate investments across the country, with a third in commercial properties, nearly another third in apartments, a fifth in industrial and 12 percent in retail.
ING Clarion Partners, the underperforming manager, submitted a plan of improvement to the pension board, which was accepted. The investment firm was put on an underperformance watchlist in January.
Last year, 98 percent of ING Clarion's peers performed better than ING Clarion and its return underperformed the NCREIF index by 6.49 percentage points.
Clarion handles $147.35 million — or 24.4 percent — of the pension fund's real-estate assets. About 56 percent is in commercial property, while a third is in industrial and about 10 percent in apartments.
Geographically, the Southwest commands the biggest portion of Clarion's holdings, at 36 percent. The Northeast follows with 24.5 percent. None are in Hawai'i.
The pension board also voted to look for an additional real-estate investment firm to manage $150 million in assets.
Blaisdell said that a strong stock market last year increased the pension fund's total assets.
Since the fund tries to invest 9 percent of its assets in real estate, an increase in total assets led to a fall in real-estate allocation to 7 percent. The board is trying to rebalance.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
