LACERA introduces revised separate account arrangements

The US public pension has approved a change in separate account real estate allocation structure, as well as a new allocation schedule for existing managers.

Institution: Los Angeles County Employees’ Retirement Association
Headquarters: Pasadena, United States
AUM: $57.88bn
Allocation to Alternatives: 23.3%
Bitesize: $50-100m

Los Angeles County Employees’ Retirement Association has changed how it allocates capital to real estate separate account managers. It will now allocate on a manager-specific basis, as opposed to allocating capital to risk strategies as it has done since 2006.

LACERA says it has shifted strategy as it is “focusing more closely on performance by each separate account manager,” according to board documents. As a result of the change, the pension expects to see better alignment of interest with the separate account managers and a reduced incentive for managers to chase early deals instead of waiting for best-fit opportunities. Separate account managers will now also be permitted to reinvest sales proceeds.

To more easily achieve its allocation targets and to better control risk, LACERA is expecting to commit to more commingled funds and reduce the size and value of its separate accounts. It expects to maintain four to five separate accounts in the range of $500 to $700 million apiece.

This fiscal year, LACERA needs to be a net seller in its real estate portfolio as it is overallocated.  $250 million is available for investment until $500 million of sales are realized. Clarion, Heitman and Stockbridge will receive the initial allocation.

As illustrated in the charts below, LACERA currently commits 11.4% of its assets to real estate.

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