For the Los Angeles County Employees Retirement Association (LACERA), new investment activity in real estate commingled funds and co-investments has been slower than expected.
Under its 2012-2013 real estate investment plan, which was approved last June, LACERA was targeting $900 million for such investments, including $400 million to domestic commingled funds, $200 million to Asian funds and $100 million each to European funds, Latin American vehicles and co-investments during its current fiscal year, which began on July 1. However, the pension plan has committed just $194 million of that amount to date, with $65 million going to European funds, $100 million to Invesco Real Estate’s new open-ended core Asian fund and $29 million to co-investments.
In addition, “staff anticipates limited new commingled fund or co-investment fund activity in the remainder of the fiscal year,” wrote John McClelland, LACERA’s principal investment officer for real estate, in a recommendation to the board. He told PERE that the lack of investment activity in commingled funds and co-investments was the result of his team being busy with other activities and lacking the time to investigate many commingled fund opportunities. “It is not a reflection of us not liking what is available,” he said.
Where LACERA has been active with its real estate portfolio is in separate accounts. In fact, the pension plan agreed at its board meeting last week to increase the amount of capital available for separate account managers by $350 million. Its real estate investment plan originally included an allocation of $600 million for separate account investments, including $350 million for core, $150 million for value-added and $100 million for high-return strategies.
All of the capital in the original separate account allocation, however, has been invested or earmarked for pending deals as a result of new investment activity by LACERA’s separate account managers during the first nine months of the fiscal year. The managers have continued to identify attractive new investment opportunities on behalf of LACERA, but an additional allocation is required for them to remain active for the last three months of the pension plan’s fiscal year.
Overall, real estate has declined as a percentage of the pension plan’s total portfolio. This is the result of growth in the overall portfolio, as well as a net decrease of approximately $315 million in its real estate portfolio because of dispositions and the receipt of significant financing proceeds in the fiscal year to date. These include the managers’ sale of a total of nine assets for approximately $258 million and the completion of financing on a portion of LACERA’s core portfolio, which generated $605 million in proceeds for the pension plan.
The market value of LACERA’s real estate portfolio stood at approximately $3.8 billion of total equity, or 9.1 percent of the overall portfolio, at the end of February. The pension plan has a target allocation of 10 percent for the asset class.