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LACERA earmarks $1.2 billion for real estate

The $41.65 billion pension plan’s investment allocation for its upcoming fiscal year includes up to $700 million for US and international commingled funds.

The Los Angeles County Employees Retirement Association (LACERA) has adopted its real estate investment plan for fiscal year 2013-2014, which begins on July 1. Through that plan, the $40.5 billion pension plan expects to allocate $1.2 billion to the asset class over that period, although substantially less actually will be deployed.

About $400 million of the total amount will go to separate account managers, including $300 million in capital to be committed to existing equity managers in core, value-added and high-return strategies. However, in a recommendation to LACERA’s board of investment, John McClelland, principal investment officer for real estate, said that only $150 million of the allocation was anticipated to be invested during the upcoming fiscal year. He explained that the pension plan expects to allocate more capital than actually would be called so that the managers would be able to submit bids for properties. In addition, the allocation provides a capital cushion for managers should they be more successful than anticipated in identifying investments.

The pension plan also expects to allocate an additional $100 million to Cornerstone Real Estate Advisers to pursue new lending opportunities. The entire $100 million is anticipated to be invested in the new fiscal year.

Meanwhile, LACERA has earmarked up to $700 million for new domestic and international commingled fund investments. In the US, the pension plan expects to allocate up to $350 million for niche opportunities in student housing, senior housing and medical office, with about $75 million of that amount projected to be deployed during fiscal year 2013-2014.

The pension plan also anticipates increased investments of up to $350 million outside the US, including $100 million each to Europe and Asia and $150 million to Latin America. Only $75 million of the international allocation is projected to be called over the 12-month period.

Furthermore, $100 million of capital may be directed to new co-investments for opportunities that do not exceed $50 million and that are located within the US. Half of that amount is anticipated to be invested during the new fiscal year.

All told, LACERA expects to actually invest a total of $750 million in the upcoming fiscal year, although $300 million will be designated for its three new real estate equity separate account managers – Heitman, Clarion Partners and Stockbridge Capital Group – whose hires were approved last month. The $300 million is part of a previously approved $600 million allocation and not included within the real estate investment plan for the new fiscal year.