Pennsylvania Public School Employees’ Retirement System Makes a New RE Commitment

By Muskan Arora

The $72.8 billion Pennsylvania Public School Employees’ Retirement System made a $300 million to Carlyle Realty Partners X.

Staff and consultant Aksia will consider up to two new real estate fund recommendation to the board this year.

The annual pacing ranges from $800m to $1 billion, however the actual commitments for 2024 are expected to be below this range.

The system will actively implement plans to get to the target allocation of 7% in the next twelve months between dispositions and slower commitment pacing. Currently, the RE sleeve allocates 8.3%.

“The fund will acquire and develop 200 to 300 properties primarily in the US that overall exhibit low correlation to GDP, high operating margins and high tenant retention,” said Jarrett Richards, at the May meeting.

“The fund will capitalize on three market opportunities including housing shortage, ageing but healthy population in the US and technological disruption that's shifting demand away from office and retail and toward industrial and residential sectors,” added Richards, highlighting an expected net return to range from 13% to 17%.

Following a trend among mangers, Fund X may take on a bit less development risk and acquire more existing properties to get the same level of return with slightly lower risk.

To maintain a balanced diversified portfolio among its opportunistic managers, the system has made a slightly higher commitment to this manager as compared to its previous two $200 million commitments to Carlyle.

“We also can't ignore the debt financing environment for this fund is different from the prior funds,” presented Richards to the board.

“The residential investments will likely be financed by the agency lenders and the industrial assets are likely to be lightly levered by lower cost of capital buyers are even folded into some of the REITs who have financing advantages. Thus, I believe that this strategy will be less affected by the availability of debt financing than many other strategies in the market today,” he added.