The Los Angeles County Employees’ Retirement System (LACERA) is betting big on international real estate, with the goal of investing up to $720 million in overseas property investments over the next three years, the pension plan said at a board meeting last week.
LACERA had 5.7 percent of its portfolio invested in international real estate at the end of 2015, according to board documents. By the end of 2018, the pension system plans to have up to 15 percent of its real estate portfolio invested internationally. Its bylaws limit international real estate allocations of up to 20 percent.
In a push for diversification, LACERA’s international real estate investments will be split largely between Europe and Asia, according to last week’s board meeting. LACERA has $194 million invested in Europe and plans to invest an additional $300 million in the region over the next three years, with an annual aggregate commitment of $100 million and an estimated commitment size of $50 million per fund.
In Asia, the pension system has $118 million currently invested in real estate and expects to allocate $345 million during the same period, with an annual aggregate commitment of $115 million and an estimated commitment size of $50 million per fund.
Meanwhile, the pension plan has just $11 million currently in Latin American real estate and plans to earmark $75 million, with an estimated commitment of $25 million per fund each year over the next three years, all in non-core investments. LACERA said its investments in Europe and Asia could be all core or all non-core, or a mix of both.
All told, LACERA intends to invest up to $720 million in international real estate over the three-year period, bringing its total overseas property portfolio to $971 million.
In order to mitigate risks in investing overseas, LACERA plans to invest in multiple funds; control leverage; participate on advisory boards; diversify funds’ vintage years; invest in developing and emerging markets; and, when possible, hedge currency for non-core investments.
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 fund. 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.
LACERA managed $5.4 billion in real estate and $48.4 billion in overall assets as of June 30, 2015, according to its latest annual financial report.