David Stafford, deputy chief investment officer at the City of Austin Employees' Retirement System (COAERS), was a guest on the latest episode of Nareit’s REIT Report Podcast.
During the interview, Stafford discussed COAERS’ decision to use REITs as part of a portfolio completion strategy starting in early 2020—an approach that has been successful for the fund and one that it continues to assess on an ongoing basis. He also spoke about the importance of having a mindset attuned to trying a new investment approach, the benefits that REITs provide to COAERS, market issues that COAERS is watching, advice for funds considering a change in strategy, and more.
COAERS is a defined benefit plan that administers retirement benefits for regular employees of the city of Austin and currently serves about 19,000 current, inactive, and retired members. The system’s investments total approximately $3 billion and are broadly diversified across asset classes including equities, real assets, fixed income, multi-asset strategies, commodities, and cash.
Key takeaways from the interview include:
- COAERS decided that implementing a completion index of REIT sectors that the system didn't already have exposure to could add diversification, lower costs, improve liquidity, and potentially increase returns for the fund over time.
- COAERS currently has a roughly 50-50 split between its existing core private markets fund and a completion index of REITs.
- The completion strategy has been “additive” to the fund overall, generating 2.7% of excess returns relative to the FTSE Nareit All Equities Index since inception at the start of 2020.
- Implementing the strategy was “surprisingly easy” thanks to partners willing to do something “a little bit innovative and new, and required some outside the box thinking.”
- COAERS has “drastically improved” its exposure to the types of properties more likely to benefit from the structural demand changes resulting from the pandemic.
- Investors should be willing to customize and work together with investment managers or various interested parties to come up with solutions that are more customized to particular needs and outcomes.