The Massachusetts Pension Reserves Investment Management Board (PRIM) has terminated its core real estate mandate with Boston-based real estate fund manager TA Associates Realty. The core separate account, which PRIM established in September 2000, was valued at $1.1 billion as of June 30.
In materials from its board meeting last week, Boston-based PRIM cited four main factors behind its termination decision. The first was TA’s performance, which trailed PRIM’s benchmark across all time periods. The firm also ranks in the third quartile as compared with its peer group over three- and five-year periods.
Recent turnover at the firm – which involved two members who managed PRIM’s portfolio and two of TA’s senior acquisitions professionals – was also a factor. PERE broke the news last month that four TA partners – Robert Provost and Dwight Angelini of the firm’s acquisitions group and Reid Parker and Nilesh Bubna of its asset management team – all had left within a few weeks of each other.
Those departures were in turn linked to a third issue that PRIM identified, namely TA’s sale of a 70 percent stake in its investment management platform last October to The Rockefeller Group, a subsidiary of Japanese real estate company Mitsubishi Estate. “The sale introduced uncertainty to the future of the organization,” PRIM said in its meeting materials. “The turnover referenced above appears to be a direct result of the change in ownership.”
Citing the final factor, the pension plan also said that TA’s strategy of buying smaller assets, typically in US secondary markets, no longer fit PRIM’s core investment strategy or return requirements.
PRIM said that TA began a formal performance improvement plan in February 2014, and over the following 18 months, its portfolio management team met monthly with PRIM’s real estate staff to discuss the firm’s performance, transactions and operations. However, on July 22, the state pension’s real estate and timberland committee unanimously approved a recommendation by PRIM’s real estate officers to terminate the TA core real estate mandate. “In the interest of time and in an effort to mitigate operational risk at the property level, staff informed TA of the decision immediately after the meeting,” PRIM said. The committee sought retroactive approval of the termination from the board at last week’s meeting.
In the short term, PRIM has transferred management of the TA core portfolio to AEW Capital Management, another Boston-based real estate fund manager. “AEW was selected due to their strong performance since inception, demonstrated portfolio management capabilities and capacity, and attractive fees,” the pension plan said. Also, the firm’s proximity to PRIM’s offices would help to foster greater interaction and communication during the transition process, it added.
As of June 30, PRIM’s real estate portfolio was valued at $6.1 billion, or 10 percent of the pension plan’s overall assets. Core real estate represented 74 percent of its total property portfolio, while non-core real estate and real estate securities made up seven percent and 19 percent, respectively.