Analysis: Retirement Systems of Alabama investment diversification continues to pay dividends

Under the 50-year guidance of Dr. David Bronner, The Retirement Systems of Alabama (RSA) has grown its total assets to $40.3 Billion, as of the latest 2022 annual report, with the 2023 report due out soon. 

Early on in his tenure, Dr. Bronner and his investment team were largely restricted by statute to investing in cash, cash equivalents and fixed income instruments. Luckily, and as Bronner took the responsibility of investing the System’s funds, the restricted investment policy coincided with a strong, long-running bull market in the bond market. And so, RSA grew its assets in impressive fashion.

However, Dr. Bronner recognized that the long-term health of the System couldn’t be sustained without some major reforms. Bronner and his team asked the Legislature to allow RSA to invest in other forms of assets as well. At Bronner’s urging and given his team’s investment successes, the Legislature wisely opened up RSA to be able to invest in a wider mix of assets classifications, including equities and real estate.  

With the statutory limitations relaxed, RSA determined it should enforce investment discipline through internal policy. RSA adopted an investment policy for guiding the allocation of portfolio assets between: Cash, Fixed Income, Equities, Real Estate and ‘alternative investments’. The Real Estate allocation was originally capped at 15%; today, I believe the cap is set at 10%.

Without the previous prohibitions, Bronner and RSA moved boldly to acquire significant real estate holdings. Currently, the real estate holdings of RSA include:

• A collection of Class A office buildings (lovingly referred to as the ‘green top buildings’) in Montgomery and Mobile, Alabama.
• The Robert Trent Jones Golf Trail – 26 courses over 11 sites throughout Alabama encompassing 468 holes covering 100 miles of championship golf;
• PCH Hotels & Resorts, eight celebrated Alabama resorts flying Marriott and Renaissance flags, featuring meeting and convention facilities, exceptional regional dining, and renowned spa services.
• 55 Water Street Office Building

I list 55 Water last, but it is easily the most significant real estate holding.

In 1993, Dr. Bronner and RSA made a spectacular play to purchase the Class A office building for $202 million.

This investment was significant for many reasons; not the least of which was that the System had never owned and managed real estate outside of our State. Now in the 30th year since that acquisition, the 55 Water ‘crown jewel’ shines bright.

55 Water is the largest office building in New York City at nearly four million square feet and boasts a 95% occupancy rate. Not only is 55 Water the largest office building in the Big Apple but also it is the second largest privately-owned office building in the United States.  

Twenty years after RSA bought 55 Water for $202 million, the market value had grown to almost $1.6 Billion. Today, after 30 years, it’s valuation exceeds $2.1 Billion – a ten-fold increase.

As we all hopefully enjoy the holiday season, I am thankful for many things, including excellent stewards of public funds and for investment home-runs, such as 55 Water. I only wish I had a few of these in my personal portfolio. Oh well.  

Steve French is a former member of the Alabama State Senate, representing the 15th District from 1998-2010.