AMERICAS: Golden years

Spring traditionally is the season of new beginnings. For many public US pensions, however, it’s the summer when they unveil their real estate investment plans for the upcoming fiscal year.

One of the most aggressive investment plans comes from the Los Angeles County Employees Retirement Association (LACERA), which has set aside nearly $2 billion for new real estate investments during its fiscal year 2012-2013, which began on 1 July.  

The $39.2 billion pension plan, which will continue to execute most of its domestic real estate investments through separate accounts, has allocated $600 million to equity separate account managers across core, value-added and opportunistic strategies, $300 million to debt separate account managers and up to $100 million for co-investments. LACERA also has earmarked up to $800 million for domestic and international commingled funds. 

One of LACERA’s key objectives for fiscal year 2013 is to diversify its overall real estate portfolio by meeting its allocation target of 10 percent for the asset class. As of 31 March, the pension’s real estate portfolio had net equity of $3.8 billion, or 9.8 percent of total assets.

Another public investor that has carved out a substantial amount of capital for real estate is the Employees Retirement System (ERS) of Texas, which anticipates committing a total of $860 million to private real estate over the next four fiscal years, including $285 million in fiscal year 2013, which will begin on 1 September. 

Under this projected funding plan, the value of the $22.3 billion pension system’s private real estate portfolio is expected to grow from $653 million as of 30 June to $1.7 billion by the end of fiscal year 2016. ERS is on track to achieve its full real estate allocation – 5.6 percent for private real estate and 2.4 percent for public real estate – by the end of fiscal year 2015. 

ERS intends to focus on non-core investments in the asset class during the coming 12-month period because of what it views as significant appreciation in core real estate market values. Some of the capital committed during fiscal years 2013 and 2014 may be invested in co-investment vehicles rather than funds to help provide greater net returns to the private real estate portfolio. Like LACERA, the Texas pension plans to invest additional capital in real estate debt opportunities and selectively pursue non-US investments, particularly in Asia.

The Teachers’ Retirement System of Louisiana, meanwhile, has allocated up to $275 million to real estate each year for the next five fiscal years, increasing its commitment to the asset class from $195.6 million in fiscal year 2012. However, the $13.4 billion pension system, which currently has invested 8 percent of its overall portfolio in the asset class, will be reducing its exposure to real estate to meet a target allocation of 7 percent for its new fiscal year, which began on 1 July.

Also pulling back on its real estate exposure is the Pennsylvania State Employees’ Retirement System, which is reducing the size of its real estate portfolio from 10 percent of total assets to 6 percent. Under its 2012-2013 strategic investment plan, the $25 billion pension system will scale back on new investments in real estate opportunity funds and refocus on separate account investments to increase control and liquidity options and reduce fees.