ERS adds portfolio
manager to watch listING Clarion, one of the fund's
real estate managers, faces concerns
about its investment performance
Hawaii's largest pension fund is concerned about the performance of one of its three real estate portfolio managers and is looking for a fourth to help manage its $604 million in property holdings.
Red flagged
The Hawaii Employees Retirement System has put ING Clarion on notice over its returns:>> Assets managed by ING Clarion gained 4.1% in the past year
>> A benchmark real estate index rose 9.7% in the same time
The $8.6 billion Hawaii Employees Retirement System's search for an additional manager is aimed at diversifying the real estate portfolio, said Kimo Blaisdell, ERS chief investment officer.
But Blaisdell added that the performance of ING Clarion, one of the three current real estate managers, has been put on a watch list by the fund, which has been pummeled in recent years by a prolonged bear market.
"We have been concerned with their long-term performance," Blaisdell said from Lihue, Kauai, where the ERS board of trustees yesterday began a three-day gathering to review the pension fund's recent performance.
ING Clarion-managed assets returned about 4.1 percent in the year ending March 31, compared to a 9.7 percent gain in the benchmark National Council of Real Estate Investment Fiduciaries real estate index.
ING Clarion is the latest manager to go on the watch list as the ERS seeks to bolster the fund's performance. Bank of Hawaii, which manages some of the fund's equity holdings, has been on it since late 2002 and the fund earlier this month took back about half of the $86 million managed by the bank, saying it was unhappy with its performance.
The pension fund fell from around $9.9 billion in total assets at the end of fiscal 2000 to $7.1 billion at the end of March 2003 before regaining some ground in the second half of last year.
The state still faces the prospect of having to pump $328.7 million into the fund in the 2005 fiscal year to meet commitments to pensioners.
Blaisdell said the pension fund's real estate holdings, which are spread throughout the country, grew a net 7.9 percent in the year that ended March 31, putting it in the top 44 percent of other large state pension funds, though it lagged the NCREIF.
"The performance was pretty good," he said.
Blaisdell said the ERS hopes to select another real estate portfolio manager by the end of the summer, joining ING Clarion, Heitman Capital Management and Invesco.
In addition, the fund has allocated $300 million for the real estate portfolio that has not yet been invested. The new manager would get about $150 million of those reserves to invest.
Blaisdell noted that the fund is not changing its asset allocation strategy. The fund's goal is to have about 9 percent to 11 percent of its assets invested in real estate.
The fund provides benefits for about 97,000 city, county and state retirees and their beneficiaries.
State Employees' Retirement System
www2.state.hi.us/ers
ING Clarion
www.clarionp.com
