The Los Angeles County Employees’ Retirement Association (LACERA) is looking further afield for real estate opportunities.
The pension system is seeking to invest 15 percent, or $720 million, of its portfolio internationally by the end of 2018, according to documents from a board meeting last week. The fund invested 5.7 percent of its real estate portfolio outside the US as of the end of 2015.
LACERA’s current international investments include a club fund with the Los Angeles City Employees’ Retirement System (LACERS), Standard Life Investments European Real Estate Club II, according to PERE research. Each investor contributed $26.8 million to the 2015 value-added vehicle. Other international allocations include $100 million to Invesco Asia Real Estate Fund III, a 2014 opportunistic fund, and $50 million to Europa Fund V, a 2012 value-added vehicle.
Now, the pension system is betting on an expanded pool of opportunities outside the US. A spokesman for the fund declined to comment, but Townsend Group, LACERA’s real estate consultant, noted some of the benefits of looking at non-domestic real estate opportunities in a board document.
“Townsend concurs that a global investment program provides diversification benefits for long term investors,” the consultant wrote in the September board document “This is especially true in the current macro environment, where the economic performance across developed and developing markets and regions diverges considerably.”
Townsend Group highlighted both the benefits of moving away from a heated US market and the improved investment opportunities abroad, with emerging markets’ real estate size growing from $8 trillion currently to an estimated $15 trillion by 2023.
“The list of managers has also expanded in many international markets,” Townsend wrote. “Many investment managers in markets such as China, Brazil and India are raising their second or third fund. They have developed not only the necessary skills to invest in their respective markets but also the track records necessary to achieve qualifications to raise further capital. With this expanded choice set, even small to mid-sized real estate investors will find viable execution options to gain the diversification required in their portfolios.”
LACERA’s real estate investments have buoyed the pension system’s overall returns. Investments in the asset class returned 12.8 percent in the fiscal year ending June 30, 2015 – the most recent figures available. This compares to the portfolio’s overall 4.3 percent return, according to its annual investment report. LACERA managed $5.4 billion in real estate and $48.4 billion overall as of June 30, 2015.