Large U.S. Permanent Fund
Large U.S. Permanent Fund
Strategic growth plan and portfolio rebalancing for real assets program
This client’s mission was to protect and grow an investment fund with more than $18 billion in assets. However, their allocation to real estate lacked the appropriate risk profile and diversification. With the need to rebalance the current portfolio, and manage a significant increase in real estate and real asset allocations to over $4 billion, they required a custom investment solution that could be implemented efficiently and in a timely manner by their limited investment staff.
Working closely with the client’s investment staff and Board, Townsend created a customized investment strategy and action plan to achieve their unique goals over a five-year period. The primary objectives for the real estate/real asset portfolio were as follows:
- Provide diversification benefits and volatility reduction to the overall portfolio,
- Provide an inflation hedge,
- Generate stable, reliable income,
- Produce an attractive, risk-adjusted return, and
- Preserve capital.
Utilizing inputs from over thirty years of investment experience, and our current global investment outlook on opportunities and risk, Townsend created a target allocation and Strategic Plan consisting of a strategic core and tactical non-core real asset portfolio. This Strategic Plan was presented to the client’s staff and Board for approval. The Strategic Plan was further augmented with annual Investment Plans.
Upon the approval of the Strategic Plan and real assets investment policy, Townsend began the work to implement the strategy. Given the significant increase in allocation and lack of existing strategic core investments, considerable commitments were made to core investments that provided broad diversification, and to core-plus investments that targeted outsized returns versus the NFI-ODCE index. In order to maintain vintage year diversification, tactical non-core commitments also continued. Initial commitments were focused on experienced managers with established track records, followed by commitments with focused operators targeting strategies that fit Townsend’s Global Investment Perspective and Outlook and the overall plan objectives.
Townsend’s global investment platform, with regional and sector specialists in the Americas, Europe and Asia, conducted the detailed investment due-diligence and provided recommendations to the client—all reviewed and approved by the Townsend Investment Committee. In addition, Townsend worked with the Fund to sell any existing non-institutional direct properties and create an overall portfolio with exposure to strong managers with a history of outperformance.
Approximately three years into the new Strategic Plan, the real estate portfolio is broadly diversified with an approximate 50% allocation to strategic core investments and a 50% allocation to tactical non-core investments. Only one non-institutional, direct investment remains. Since its rebalancing, the real estate portfolio has generated a 14.4% net return, outperforming the NFI-ODCE index (net) by 220 bps.
Further, execution on the new allocation to real assets has begun and currently consists of seven commitments to both open and closed-end funds across infrastructure, timber and agriculture. Though still early in their respective life cycles, these investments provide strong diversification both geographically and by underlying revenue driver.
Townsend continues to advise and counsel our client on the execution of the Strategic and Investment Plans, monitor all investments, provide quarterly performance measurement reporting, and present monthly updates and recommendations to the Board.
The above example is for illustrative purposes only. It does not constitute a past specific recommendation for current investment. Townsend’s view regarding this example may be changed or modified at any time without further notice to you. Past performance is not a guide to future results. Actual results and developments may differ materially from those expressed or implied herein. Investing involves risk, including possible loss of principal.