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Allocation Manager Hired Decision Date California Public Employees’ Retirement System $1 billion Citigroup European Investors Morgan Stanley Presima RREEF August 2006 Los Angeles Fire & Police Pension System $140 million $70 million Adelante Capital, Morgan Stanley Principal Global Investors March 2006 April 2006 Maryland State Retirement System $150 million Morgan Stanley July 2006 Pennsylvania Public School Employees’ Retirement System $400 million European Investors Cohen & Steers LaSalle August 2006 Oregon Public Employees’ Retirement Fund $300 million Morgan Stanley European Investors Presima September 2006 New York State Teachers’ Retirement System $400 million LaSalle RREEF Citigroup European Investors October 2006

Pension Funds Allocate to REITs Around the World

By Jon Peterson

As REITs outpaced all other major market indexes for the seventh straight year in 2006, the market saw a number of pension funds beginning to allocate investment dollars flowing into REITs around the world.

California Public Employees Retirement System (CalPERS) made the biggest splash in 2006, allocating $1 billion to international real estate equity securities. The pension fund anticipates it will have an international REIT strategy for the next five to 10 years.

“The international program will give us access to markets that are difficult to invest on a direct ownership basis,” says Jane Delfendahl, an investment officer with the CalPERS pension fund REIT program. “Also, there is the added benefit of liquidity. Our program helps REIT managers invest in companies that own office, industrial, retail and apartment properties.”

Oregon Public Employees Retirement Fund (Oregon PERF) also began an international REIT strategy in 2006. “There will be many international REIT markets opening soon,” says Brad Child, the fund’s real estate investment officer. “There should be good investment opportunities with the U.K. and Germany starting a REIT market in 2007.”

The fund has invested $300 million in markets like Asia and Europe in 2006. According to Child, Oregon PERF will be taking a “wait and see” attitude before committing any additional capital to the program.

2007 Pension Fund Flow to REITs

It seems likely that there will be more pension capital going into REITs in 2007. For example, California State Teachers Retirement System (CalSTERS) has potential to become a major player in the REIT investment arena. The pension fund created its first REIT investment program for the fiscal year 2007 and changed its real estate allocation from 6 percent to 11 percent.

Another fund that set the stage for 2007 REIT investing was the Orange County Employees Retirement System (OCERS) in California. Toward the end of 2006, the fund allocated 15 percent of its real estate portfolio in public real estate securities. This means the fund would have approximately $99 million to invest in REITs. The fund says it believes in investing in public REITs because they are already established in the marketplace and have great access to deal flow, which is not always the case when investing in private companies.

“Our board is comfortable investing in public real estate,” says Keith Bozarth, chief executive officer of OCERS. “The liquidity of this strategy gives it an advantage over directly investing in private real estate.”