A recently completed industrial asset (warehouse) in California’s Inland Empire region.

Office buildings, warehouses, and apartment complexes dot the landscape from coast to coast. They are common landmarks that we usually pass by every day without a second thought. We know these brick-and-mortar spaces are important to a thriving economy, but what might surprise you is how important they are to SWIB’s investment strategy.

SWIB’s real estate portfolio helps diversify the Core Trust Fund and has generated an impressive track record of investment performance, which has greatly benefited the Wisconsin Retirement System, helping to keep it fully funded and well positioned to deliver on its promise to more than 652,000 members.

“SWIB has been regarded as a leader in using real estate to help build a diversified investment portfolio for a long time,” Jason Rothenberg, SWIB’s head of real estate, said. “In fact, investment reports dating all the way back to SWIB's inception in 1951 show some level of exposure to real estate, both as a direct owner of property and as a commercial mortgage lender. It was really in the early 1980s that SWIB went a step further by adding dedicated staff solely focused on building out the real estate equity portfolio, which was relatively uncommon for a pension plan in those days and helped SWIB take advantage of what was then a relatively inefficient market.”

Rothenberg continued, “currently, I lead a team of six in-house professionals who oversee the portfolio, many of whom, including myself, have previous experience working for developers, owners, and operators of real estate.

“As it has been since the 1950s, real estate as an asset class is an important source of diversification for the Core Trust Fund, helping to reduce volatility, create more consistency in returns, improve overall performance, and provide some inflation protection,” he said. 

The real estate portfolio, which represents about 8% of the Core Trust Fund or $10.3 billion, sits within SWIB’s Private Markets and Funds Alpha Division. The majority of the investments in the portfolio are domestic and cover a variety of property types including office buildings, retail stores, apartments, industrial and warehouse properties, as well as other specialty sectors like student housing, scientific lab space, and even hospitality and hotels.

“Our two largest weightings by property type in the current portfolio are industrial buildings or warehouses and apartments, which are known in the industry as multi-family,” Rothenberg said. “Together, those make up about 50% of our portfolio,” Rothenberg said. “We found those two property types to be good sources of durable cashflow over time. Office buildings and retail properties, like shopping centers, make up about 20% to 25% of the portfolio. The rest of our portfolio is in what we call alternative or specialty sectors like life science or lab buildings, medical office buildings, student housing properties, and data centers.”

Although investments are spread across the country, the COVID-19 pandemic has created a shift in markets that investors are targeting.

“The pandemic has accelerated the trend of people moving into the Sun Belt markets and decelerated the growth of what we call the “Gateway markets” or the big markets like New York and San Francisco,” SWIB’s Private Markets and Funds Alpha Chief Investment Officer Anne-Marie Fink said.

In a competitive marketplace, SWIB has a number of options in the way it invests in properties from owning 100% of the building to joint ventures.

The end result of growing the real estate team and WRS real estate assets has been returns that benefit the WRS over the long term.

“After a somewhat more challenging year in 2020, the portfolio really delivered in 2021, generating about $1.3 billion in absolute returns,” Fink said. “Our ability to invest for the long term and stay the course during a more difficult period like 2020 was a key element in generating those 2021 returns, and the real estate portfolio contributing to the $2.2 billion in total added value that SWIB has generated for the Core Trust Fund over the past five years.”

Want more insight into SWIB’s real estate portfolio? Check out Episode 16 of The SWIB Podcast and hear more about the history behind SWIB’s real estate portfolio, the types of investments being made, and what the outlook is for the remainder of this year and beyond.