Alpha Edge Recognition - Real Estate Investing
This year, Allocator Intel is recognizing leaders in the allocator community, acknowledged by their peers, for exceptional leadership in the key areas of portfolio construction in the Alpha Edge Recognition Awards.
Nominated for Alpha Generation in Real Estate Investing, Jim Mattingly is the Director of Real Assets for the Indiana Public Retirement System (INPRS). INPRS is the $40 billion public pension plan covering teachers and public employees within the state. Jim joined INPRS in 2018. As Director of Real Assets, he has investment strategy oversight for INPRS’s real asset portfolio including commodities, real estate, infrastructure, and private natural resources.
Prior to joining INPRS, Jim held a variety of finance, accounting, and investment roles for both Anthem Insurance, now Elevance Health, and for Eli Lilly and Company. In addition to his work experience, Jim previously taught a course in Derivatives and Risk Management for the Lacy School of Business at Butler University.
Jim received his MBA in Finance and Economics from the University of Chicago Booth School of Business and a B.S. in Accounting and Computer Information Systems from the Kelley School of Business at Indiana University.
The following is edited for length and clarity.
Let’s begin with you sharing an overview of your portfolio
INPRS has a 10% allocation to real assets and a 10% allocation to commodities. Within real assets, the team primarily focuses on real estate and infrastructure, however, we also evaluate other real asset strategies such as natural resources. We are continually seeking real asset strategies and teams that we believe are going to outperform our respective benchmarks.
In real estate, our investment commitments represent a robust opportunity set of diverse geographies and property types across the entire capital stack.
What have been some of the significant changes for you, and this can be within the company or you or the portfolio?
Recently, INPRS expanded the real assets allocation from 7% to 10%. With this increased allocation, The Real Asset Team has focused on building out an infrastructure portfolio. I am very excited about the progress we’ve made. We have made several attractive investments over the last twelve months, and we continue to evaluate a pipeline of future opportunities.
What are you looking at right now?
I look at opportunities like a Venn diagram: We first consider what allocations we are seeking to increase. Next, we identify managers that are currently fund raising and we have strong convictions about their investment capabilities. Lastly, we try to lean into property types or asset classes which are experiencing demographic, technological, or market tailwinds. In a perfect scenario, an investment will be: an allocation we need, a manager in which we have a lot of conviction, in a property type or asset class that has positive tailwinds.
Recently, we made an allocation to neighborhood retail centers anchored by specialty grocers. We saw this allocation as an opportunity to lean into some of the demographic changes that the U.S. is experiencing. In infrastructure, we have made several commitments to digital assets such as cell towers and data warehouses. In these commitments, we were seeing tremendous market opportunities and growth associated with current and future technologies.
How is artificial intelligence impacting your strategy?
I do not believe AI has materially impacted real estate yet, though it is still early. Conversely, general technology is having a major impact on real assets. Beyond the comments I have already made about digital assets, technology is changing the way we live and work. These changes have dramatically impacted the demand for various property types. The shift from brick-and-mortar retail to online sales has shifted logistic supply chains and has helped fuel the rapid demand for industrial buildings.
Conversely, the technologies enabling WFH are driving weakness in traditional CBD office. Items that formerly would have been purchased at a mall are now being bought online. Meetings that would have taken place in-person are now being conducted via Zoom.
What would that mean for the retail investors?
At some point, AI will be another tool for both institutional and retail investors alike. It probably presents an opportunity to analyze data and opportunity sets more expeditiously than current methods.
I am skeptical that AI will replace human decision-making. We along with our stakeholders need novel investment ideas and opportunities.
Calculators did not replace the need for Mathematicians. Spreadsheets did not replace the need for Accountants. In both cases, these formerly emergent technologies became another tool that further enabled human decision-making. I see AI being similar.
What are some factors that you look at when evaluating opportunities?
We try to identify investment managers which have a competitive advantage that’ll enable them to create alpha, and ask, “Are we recreating the right alignment to create alpha as well? Are we getting paid adequately for the risk we’re taking?
It’s starts with the team: Do they have the right people in place? Have those people demonstrated the ability to do what they’re pitching you? Can this team positively affect an investment’s outcome?
From there, we seek to create investor alignment which ensures that we are sharing both the risk and the reward. To the extent that the manager has financial success, we want to ensure that INPRS has financial success as well. Conversely, if a strategy fails to achieve financial success, we want to ensure that both parties are aligned.
What investment opportunities are you focused on in the next 12 to 18 months?
We’re probably going to lean in on real estate private credit: It’s an attractive environment. As traditional lending sources are challenged with distressed office loans, many borrowers are turning towards non-traditional credit sources. As a result, many new loan portfolios are generating higher returns with lower risk.
What are some of the challenges that you anticipate for you and your team in the next few years?
We touched upon it a little before, but we’re investing in a rapidly changing world. We are seeing various changes in demographics, interest rates, inflation, technology, and environmental. These changes are impacting the assets in which we invest, either positively or negatively; thus, we are constantly looking to turn over the portfolio, limiting property types with negative and uncertain outlooks while increasing allocations to property types with favorable outlooks.
What is your greatest accomplishment?
I’m proud of the team we’ve built: The INPRS Real Asset Team is a talented group of people that I am blessed to work with.
Further, our team recognizes the impacts of our decisions. We all know the importance of the people we represent and the impact our participants have on our community. I, along with my colleagues, are excited to play a vital role in the financial future of our participants.
How many external managers do you work with at the moment?
The Real Asset portfolio has between 30 and 40 managers: across the entire INPRS plan, it’s in the hundreds. We have managers in Asia, Europe, and certainly in North America. We spend a significant portion of our time monitoring and interacting with these partners.
What do you do in your spare time?
I love to travel. I don’t think there’s any substitute for being there. Until you really experience a place personally, you don’t really know what it’s like. My family and I have already started planning for Spring Break next year: We’re going to do Kerala, India, and Sri Lanka. This’ll be my first time in either country. I am excited to experience the sights, sounds, and cultures in both countries.