May 2020 Real Assets Portfolio Review, 2020 Real Estate Pacing and Longpoint Recommendation CONFIDENTIAL Sally Haskins Senior Vice President Jan Mende Senior Vice President Lauren Sertich, CAIA Senior Vice President
Recap of Activity in 2016, 2017, 2018, and 2019 $265 million committed to eight managers and nine funds. Core/core plus portfolio restructured Multiple searches for Non-core funds to achieve vintage year diversification and identify MWDBE managers Added debt to the portfolio through investment in a top tier large manager and a smaller MWDBE manager. • Blackstone Real Estate Debt Strategies High Grade - $40 million commitment in 2016 • Basis Investment Group, BIG Real Estate Fund I - $30 million commitment in 2017 Added two new value-add managers to the portfolio. • TA Realty Fund XII - $35 million commitment in 2018 • Heitman Value Partners IV - $35 million commitment in 2018 Allocated capital to four MWDBE managers (five funds), with strong track records in diversified strategies. • Oak Street Real Estate Capital Fund IV - $25 million commitment (net lease strategy) in 2016 • Green Oak US Fund III - $25 million commitment (multi-sector value add strategy) in 2017 • Longpoint Realty Fund I - $20 million commitment (multi-sector value add strategy) in 2017 • LongWharf Real Estate VI – $35 million commitment (multi-sector value add strategy) in 2018 • Oak Street SASC II - $20 million commitment (investments in private real estate emerging manager funds) in 2018 Restructured Core/core plus portfolio in 2018 • Capital redeemed from UBS Trumbull to be redeployed into LaSalle Property Fund, Clarion Lion Industrial Trust and PRISA II. Wind down of older vintage year funds is consistently slower than projected by the managers. Distributions are being pushed out by the impact of Covid-19. Knowledge. Experience. Integrity. Chicago Teachers’ Pension Fund 32
CTPF Pacing Model – Updated Annually CTPF Real Estate Market Value $m Projected Annual Commitments ($m) (Current/Projected )* Year Non-Core Core Total $1,400 $1,200 2020 $60 $40* $100 19% 21% 21% 23% $1,000 2021 $50 $40* $90 25% 15% $800 2022 $30 $0 $30 $600 2023 $30 $0 $30 81% 79% 79% 77% $400 75% 85% 2024 $30 $0 $30 $200 *Represents additional allocation to PRISA II approved in 2018 $0 Current YE2020 YE2021 YE2022 YE2023 YE2024 The plan is developed with the following assumptions (and updated annually): Core Non-Core 9% Target • Target Core/Non-core mix of 75/25; *Assumes non-core commitments of $60m in 2020 and $50m in 2021 • Portfolio will be diversified by property type and region via the Core portfolio; • Dividends are reinvested in the Core portfolio, which is a lever that can be reassessed as needed; • Non-core is expected to be a return enhancer relative to Core; • Portfolio will be diversified by manager; • Investments will be made in primary funds; • MWDBE managers will continue to factor prominently into the portfolio; • Investment is expected to be predominately U.S. focused; and • Non-core portfolio will be anchored by managers/Fund series that CTPF can strategically reinvest with Knowledge. Experience. Integrity. Chicago Teachers’ Pension Fund 33
Conclusion Recommendation and Action Items • Consider allocating up to $60 million for the 2020/2021 fiscal year. Primary focus will be re-ups with strong, existing managers. • Evaluate the impact of Covid-19 on portfolio cash flows and values on a quarterly basis and continuously review pacing. • Continue to reinvest with strong MWDBE managers. • Allocate up to $30 million to Longpoint Realty Partners Fund II • Allocate up to $30 million to Newport Capital Fund III Knowledge. Experience. Integrity. Chicago Teachers’ Pension Fund 34
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