The $39.2 billion Los Angeles County Employees Retirement Association (LACERA) has agreed to allocate a total of $300 million to three of its separate account managers—Invesco Real Estate, Cornerstone Real Estate Advisers and Capri Capital—under the pension plan’s fiscal year 2011-2012 real estate investment plan, which was approved at its August 10 board meeting.
Each of the managers will have access to the entire $300 million on a first-come basis as investments are identified, but the capital must be allocated equally between LACERA’s three risk profiles of core, value-added and opportunistic investments. Only $150 million is expected to be deployed during the current fiscal year.
The allocation is the first capital that has been made available to the separate account managers since the 2007-2008 fiscal year, when investment activity by the managers was suspended as a result the LACERA’s over-allocation to real estate, which was then 13.5 percent.
The real estate investment plan is projected to increase the retirement fund’s real estate allocation from 8.2 percent currently to 9.6 percent—below its target allocation of 10 percent but within the permitted range of 7 percent to 15 percent. “Attractive new investment opportunities are becoming available, making it prudent to bring LACERA’s allocation closer to the target,” wrote John McClelland, interim chief investment officer, and Trina Sanders, investment officer of real estate, in the plan documents.
Other new investments under the plan include $175 million for potential new commitments to attractive co-investment opportunities or specialty commingled fund investments during the fiscal year. LACERA said it currently is assessing one of each type of opportunity.
In regards to existing investments, LACERA is anticipating its six separate account managers to invest about $103 million in capital improvements and $99 million in leverage reduction during the fiscal year. Meanwhile, the retirement plan’s commingled fund managers are projected to draw about $194 million—including $130 million in the US and $64 million internationally—of the $332 million in outstanding commitments during the fiscal year.
Furthermore, LACERA’s initial investments in commercial real estate debt are expected to be completed during the fiscal year, with $295 million of the $400 million previously allocated to two real estate debt managers expected to be deployed. Those commitments are to separate accounts run by Cornerstone and Quadrant Real Estate Advisors.
While no new capital is anticipated to be invested internationally during the current fiscal year, LACERA’s staff expects to evaluate a number of opportunities over that time period, including commingled funds in Latin America and several follow-on fund offerings from two European-focused managers that have performed well.