San Diego revises DeAWM separate account

The pension plan voted Thursday to approve changes to reduce volatility and diversify core exposure.

The San Diego City Employees’ Retirement System (SDCERS) approved changes to its separate account with Deutsche Asset & Wealth Management (AWM) in an effort to diversify the pension plan’s core exposure and reduce volatility.

The investment committee decided Thursday to redirect an outstanding $47.5 million commitment for Deutsche AWM to a yet-undetermined real estate core fund, Liza Crisafi, SDCERS’ chief investment officer, told PERE. The pension plan has committed $374.3 million to the Deutsche separate account since December 1996, according to documents from the meeting. As of the second quarter of 2015, SDCERS’ individually managed account (IMA) program generated a 6.9 percent return over 10 years, beating the NFI-ODCE benchmark index, which has returned 5.9 percent over the same period, according to a document from Aon Hewitt, the pension’s real estate consultant.

According to the documents, SDCERS’ IMA program has higher expected long-term volatility in its performance than the NFI-ODCE funds, a lack of diversification and accounts for more than half of the private real estate portfolio. Because of this, the pension plan voted to reduce its individually managed account allocation from 52 percent of the portfolio to a target of 35 percent, keeping a 55 percent hard cap in place. SDCERS’ portfolio lacks office investments and is overexposed to smaller-sized assets and industrial properties, Aon Hewitt said in the Thursday presentation. Overall, real estate makes up 11 percent of the pension’s portfolio.

The separate account change will help with lower long-term asset class volatility, and smaller, non-strategic assets could be sold, too, according to the consultant’s presentation. At the end of 2015, the Deutsche AWM account comprised 20 properties.

In the first quarter of this year, JP Morgan Asset Management is expected to draw an additional $30 million SDCERS commitment to the JP Morgan Strategic Property Fund. This gives the pension plan over $100 million exposure to the vehicle and helps mitigate SDCERS’ smaller investment exposure, according to Aon Hewitt.