The march of US pension plans towards core strategies carries on, with the Los Angeles Fire and Police Pensions (LAFPP) becoming one of the latest to shift from opportunistic investments towards income-producing properties.
According to documents from LAFPP, which had $1.1 billion invested in real estate as of 30 June 2011, the pension plan recently heeded the advice of The Townsend Group to move from a 50:50 allotment between core and non-core real estate to a 60:40 mix in favour of core. Moving forward, LAFPP intends for up to 70 percent of its real estate investments to be core, while investing as little as 30 percent in non-core real estate products.
“Capital pacing shows a need for $400 million to be deployed in core in 2012, then another $100 million in 2013 and 2014 and another $50 million in 2015,” according to documents from Townsend recommending the shift. The core vehicles Townsend has recommended for LAFPP include those managed by Heitman, Jamestown Properties, UBS Global Asset Management, JPMorgan Asset Management and Prudential Real Estate Investors.
LAFPP’s plan follows a number of LPs that recently have opted to move away from riskier opportunistic funds and more towards core vehicles and investments. The New Mexico State Investment Council’s recent commitment of $110 million to two open-ended US core real estate funds are part of that state endowment’s plan to move out of opportunistic and value-added real estate and more towards stable, income-producing investments. Additionally, both the California Public Employees’ Retirement System and the California State Teachers’ Retirement System have been shifting their portfolios away from opportunistic strategies and towards core investments.
Los Angeles Fire and Police Pensions
Total assets: $13.25 billion
Total real estate assets: $1.2 billion
Percentage allocation to real estate: 9 percent
Targeted net return from real estate: 7 percent
Target real estate mix: 60 percent core, 20 percent value-added, 20 percent opportunistic