The Los Angeles County Employees Retirement Association (LACERA) has approved an increase in its capital allocation limit to Capri Capital Partners from $300 million to $400 million. The pension plan hired the Chicago-based investment firm as a separate account manager in December 2002 under its emerging manager program. Capri oversees a mandate for core, value-added and high-return multifamily opportunities in supply-constrained markets.
LACERA, which established an emerging manager program in 2001, limits the maximum amount of capital allocated to any single real estate emerging manager to $300 million. However, Capri has identified a potential new core investment that would require about $100 million of capital, which would cause the firm to exceed its $300 million limit.
In his recommendation to the board, John McClelland, LACERA’s principal investment officer for real estate, advocated for the allocation increase because of the difficulty of identifying and securing high-quality core investments. Also, the pension plan’s allocation to core real estate “is near the lower limit, thus additional core investments are desired.” However, he pointed out that increasing the amount of LACERA capital managed by Capri would not increase the pension plan’s total real estate allocation since the additional capital would come from funds already allocated for real estate investment.
Additionally, LACERA’s real estate staff anticipates making a recommendation to move Capri out of the emerging manager program to a mainstream manager, likely in the next couple of months. This would make the firm the first to graduate from the pension plan's real estate emerging manager program. Full-fledged separate account managers have a total limit of no more than 35 percent of LACERA’s real estate portfolio.
“Capri has performed well for LACERA as a separate account manager,” McClelland wrote. “While only five investments have been fully realized, the remaining properties are expected to meet or exceed original underwriting projections.” As of June 30, 2012, Capri had generated aggregate time-weighted returns, net of fees, of 22.4 percent for the prior year and 15.7 percent for the previous three years.
Additionally, he noted that the firm had proven its expertise at utilizing joint venture structures with partners and that its asset and portfolio management teams have a demonstrated ability to execute core, value-added and high-return investments.
Furthermore, the staff expects to recommend an increase in the emerging manager limitation to 10 percent of LACERA’s real estate allocation, or about $400 million, when LACERA’s real estate objectives, policies and procedures are reviewed in May.
Capri is a minority-owned real estate advisor that invests in both equity and debt in the commercial and residential property markets, with approximately $3.5 billion in real estate assets under management. LACERA has invested a total of $267 million of equity with Capri, including approximately $187.7 million in the separate account, and an investment, currently valued at $79.3 million, through the Capri Capital Urban Fund.