The San Diego City Employees Retirement System (SDCERS) has approved a $50 million commitment to LaSalle Investment Management’s LaSalle Asia Opportunity Fund IV. The investment will be a part of the $6.6 billion pension plan’s allocation to opportunistic real estate.
At its June 2013 meeting, SDCERS’ board approved the concept of including a 2 percent to 3 percent allocation to opportunistic real estate within the pension’s Opportunity Fund. After researching several other funds, staff and consultant Hewitt EnnisKnupp identified Fund IV as an opportunity that met its desired “distressed” investment theme for the allocation.
Through Fund IV, LaSalle is seeking to raise $500 million for debt and equity investments in office, retail, residential, warehousing and logistics, hotels and other commercial properties in the Asia-Pacific region, with a focus on Japan, Australia and China. LaSalle is targeting an 18 percent net internal rate of return for the vehicle. Other investors in the fund include the Arkansas Teacher Retirement System and the Teacher’s Retirement System of Illinois, according to data from PERE’s Research and Analytics team.
In July, PERE reported that LaSalle had raised $192 million for Fund IV’s first close after the vehicle had been in the market for more than 18 months. The fund had an original reported target of $750 million, but LaSalle lowered that target as the fund suffered from adverse investor appetite for pan-Asia opportunity funds during 2012.
Documents presented to SDCERS by Hewitt EnnisKnupp made note of this decrease in the size of the fund, but it considered the smaller vehicle to be in better alignment with LaSalle’s “historical investment strengths” and “more focused strategy.” The documents cited LaSalle’s “dedicated Asia team” and “unique off-market sourcing opportunities” via the JLL research platform, as well as Fund IV’s investor friendly terms as reasons for committing to the vehicle.
A presentation by LaSalle to the SDCERS board included Fund IV deal information, noting that LaSalle already has invested $74 million in equity in seven assets on behalf of the fund, including three in Japan, two in China and one in Australia. LaSalle also included details on Fund IV’s deal pipeline, which is comprised of 18 assets totaling approximately $453 million in equity.
The commitment brings SDCERS’ non-core investments for 2014 to $120 million. At its March 13 meeting, SDCERS approved $50 million to The Carlyle Group’s Carlyle Realty Partners VII and $20 million to CBRE Global Investors’ CBRE Strategic Partners US Value VII. As of March 31, the pension plan allocated 9.3 percent of its total portfolio to real estate, with an 11 percent target for the asset class.