LACERA to expand RE separate account program

The Los Angeles County Employees Retirement Association has taken the initial steps in conducting its search for additional real estate separate account managers. At its monthly board of investments meeting yesterday, the pension plan approved minimum requirements to be used in a request for proposals that will be issued by the end of this week.

LACERA previously had indicated in its real estate investment plan for fiscal year 2012-2013 that it planned to conduct an RPF for new real estate separate account equity managers during the 12-month period beginning July 1. The primary reasons for the search are to expand its investment opportunities and to provide management flexibility.

In a recommendation to LACERA’s board of investments, John McClelland, principal investment officer of real estate, and Amit Aggarwal, real estate investment officer, noted that the pension system’s real estate program currently was constrained in its capacity to make new investments through separate accounts.

LACERA’s real estate program currently includes six separate account equity managers, including RREEF, TA Associates Realty, Invesco Real Estate, Capri Capital, Cornerstone Real Estate Advisers and Emmes Asset Management. Of the six, RREEF, TA Associates and Invesco each already manage nearly $1 billion of LACERA’s assets, which is close to the maximum allocation for a single manager. Of the remaining three managers, only two are considering new investment opportunities, one of which is limited to multifamily properties. “Therefore, adding managers with new investment capabilities will help meet LACERA’s expected continued appetite for additional real estate,” McClelland and Aggarwal wrote.

Additionally, the officers said it was advisable for the pension plan to have broader management capacity within real estate. “If LACERA ever found itself in the position of wanting (or needing) to transfer assets between managers, an adequate stable of managers with asset management capability would need to be under contract,” they wrote. “While staff sees no imminent need for takeover capacity, it is prudent to establish additional management flexibility.”

With its RFP, LACERA will be seeking real estate separate account managers that are capable of investing in core, value-added and opportunistic strategies in multiple US regions. The pension plan’s real estate staff anticipates recommending initial allocations of approximately $200 million to new managers.

The minimum requirements for the real estate separate account equity manager RPF include being registered as an investment advisor with the US Securities and Exchange Commission; a minimum of five years of institutional real estate investment experience; a minimum of $2 billion of institutional real estate assets under management; and no single client having control or authority over more than 20 percent of the firm’s tax-exempt assets under management.

With the board’s adoption of the minimum manager qualifications, staff will be posting the RFP on LACERA’s website by the end of the week. Due diligence for the search is expected to be completed in May, with a final recommendation for action to be presented to the board at its June 12 meeting.