The Los Angeles Fire and Police Pensions (LAFPP) approved commitments to the first and third open-ended PRISA real estate funds of Prudential Real Estate Investors. In addition, the $13.6 billion pension plan has decided to partially fund its commitment to the PRISA III fund by cashing out of its investment in the PRISA II vehicle.
According to documents, the LAFPP’s board approved The Townsend Group’s recommendation that it commit $60 million to the PRISA fund, an open-end core vehicle. In addition, the LAFPP approved a contribution of $25 million to Prudential’s open-end value-added vehicle, PRISA III. The LAFPP plans to finance its commitment to PRISA III by redeeming its current investment in the PRISA II fund, which is approximately $15 million, and contributing that along with an additional $10 million to the third fund.
Prudential’s PRISA series of funds invest in US real estate. The PRISA fund, which originally was formed in 1970, currently manages net real estate assets of approximately $11 billion. The fund, which can use up to 30 percent leverage in its portfolio, has a target gross return over a complete market cycle of 7.5 percent to 9.5 percent.
Formed in 2003, PRISA III currently manages net real estate assets of approximately $1.1 billion. The value-added vehicle, which can employ 50 percent leverage, is targeting long-term gross returns of 11 percent to 14 percent.
The PRISA II fund was formed in 1980. It is an open-ended core-plus fund currently managing net real estate assets of approximately $5.5 billion. The fund, which employs leverage up to 40 percent, has a targeted long-term gross return of 8.5 percent to 11 percent. LAFPP had approved its $30 million commitment to the fund in March 2007, and approximately $18.4 million has been called to date. The current value of the investment is about $15 million.
These new allocations are part of LAFPP’s plan to shift its real estate investment focus. The new investment plan, which was approved last May, seeks to rebalance the pension’s real estate portfolio from 50 percent core and 50 percent non-core to 60 percent core and 40 percent non-core. The real estate allocation target for LAFPP was 9 percent last year.
Tom Lopez, chief investment officer of LAFPP, confirmed with PERE that the allocation target is the same for 2013. The current allocation level is 8.25 percent.