by Bradley Parsons
Staff Writer
After riding the stock market roller coaster of the last four years, the Police and Fire Pension Fund is ready to give some of its money a rest.
Like most heavy investors on Wall Street, the fund has watched its earnings rise and fall with the market’s recent fluctuations. In the past, the fund has invested about 60 percent of its $800 million in stocks. Now, preparations have been made to steer a substantial chunk of the fund’s assets into a real estate market that administrators hope will provide steady growth.
In November, the fund will begin investing about $80 million into real estate. About half that money will flow into Class A office buildings nationwide. Fund managers would put that portion into established landmark buildings, which attract big clients and high rents, said fund administrator Richard Cohee. These investments are the most stable, but because they cost more to invest, the potential return is not as high.
The rest of the fund’s real estate money will go to into riskier ventures that offer more upside. The so-called “value-added” market often requires investors to renovate their holdings before they’re sold or rented at higher profits.
The value-added market could include downtown’s Laura Street trio. Mayor John Peyton has asked the City Council to deed the three crumbling structures — the Marble Bank, Florida Life and Bisbee buildings — to the Pension Fund, which would redevelop them for residential and commercial use.
“When you’re in the value-added market, you’ve ratcheted up the risk a little bit,” said Cohee. “But there’s potential there for a little better return on your money.”
The fund hopes to earn about 12 percent in the value-added market, about 11 percent from its more stable, class A investments. While that’s about the same rate of return as the fund has made in the stock market in recent years, Cohee said real estate should perform more consistently than stocks.
Real estate is the latest step the fund has taken toward diversification. By stretching its assets over a broad range of investments, the fund smooths out the sharp spikes in stock market performance. The fund has always balanced its stock holdings with about 40 percent investment in the calmer bond market. By further diversifying, Cohen said the fund will be better positioned to take advantage of surging markets, while dulling the effect of losses.
The combination of stock and bond market investments returned 15 percent last year and 9 percent so far this year. But a sputtering market in 2001 cost the fund 2 percent in 2001 and nearly 7 percent in 2002. Even during those years, the fund outperformed three quarters of pension fund investors, but Cohee said the market’s struggles convinced the fund’s board to start looking at other investment opportunities.
“It’s hard to get excited about losing 3 percent just because everyone else is losing 5,” he said.
The board reviewed proposals from 23 leading real estate portfolio managers before choosing JP Morgan Fleming. The firm will manage the fund’s foray into the safer core market. Cohee said the fund will invest about $40 million to start. That could be followed by another $10 million, depending on how the real estate and stock markets perform. JP Morgan Fleming will earn a 1 percent fee based on the amount invested.