In the most recent episode of ​​The Distribution by Juniper Square, Brandon Sedloff interviewed Troy March, Director of Real Estate at North Carolina Retirement System’s Investment Management Division, which currently has over $8.5 billion in AUM.

During their conversation, the two discussed March's shift from a commingled fund model to a separate account model, which leverages a "concentrated diversification" approach. They also explored the importance of building long-term relationships to secure the right deals at the right time and achieving rapid scale in niche sectors to capture portfolio premiums. Read on to uncover more valuable insights from their discussion.

March described his shift from commingled funds to a separate account model with a term he coined, “concentrated diversification.” He explained: “I want to concentrate in a particular sector with a manager and give them a large allocation…so that I'm diversified across my whole book. If you have a pool of diversified commingled funds, you really have no control over your asset allocation. Asset allocation decisions drive 90 plus percent of your total returns. And for me, everything is about control of what my pie chart looks like.”

March chooses players with established track records in their sector and grants them discretion on the investment side—he’ll let them recycle cash flow back in, skip the dividend checks, and even sell assets. “So they’re not losing that AUM, which I think is a good alignment of interest,” March noted. “What I want in exchange for that is the ability to turn off that drip [off and on] at any time…to adjust my pie chart on the margins.”

This model also keeps March clear about the investments he doesn’t want. “I'm not interested in student and senior housing as a separate account because I don't want enough of that in my portfolio to warrant a half-a-billion-dollar partnership," he remarked.

With each of his ten or so partnerships, March chose a sector-tested player small enough to give him their full attention; in return, he grants them investment discretion. "I've never really understood how [allocators like me] think that they can know enough about a particular investment to tell the GP yes or no,” said March. “That's why I give discretion to the managers, because I could never have that level of knowledge." Many of these relationships emerged organically from his network, often over years.

“I value people that focus on the relationship first and only bring me opportunities that would be of interest to me,” March stated. “Knowing what that is is simple enough.”

The North Carolina platform looks underweighted toward real estate, so March anticipates headroom for new investments in 2025. That said, “Most likely, anything new is going to be more niche,” he noted. “We already have all the traditional sectors covered. And anything new would be complementary to what we have.” He’s watching medical office, marinas, and workforce housing as a few interesting areas. “I like small check-sized sectors,” March continued. “What I’ve discovered with our self-storage separate account and our small retail account is portfolio premium really is worth a lot of money.”

“The quicker you can get to scale, the more valuable it is,” March continued. “Roll up a portfolio, sell half of it, capture portfolio premium, wash, rinse, repeat….Even just capturing 50 basis points of portfolio premium takes that core level risk up into opportunistic type returns.” Of course, finding these opportunities before others spot them takes hard work and what March called an “insane” amount of reading.

March described his job as “as much about being a macroeconomist and understanding what’s going on in the world as it is real estate investing.” To March, it’s all about “picking your exposure level to various industries. Hopefully, I can do that well.”