REAL ESTATE - The Los Angeles County Employees Retirement Association has chosen an initial commitment of $600m as it establishes a new way to allocate capital for its separate account real estate managers.
The allocation will be split into three categories. Core will be getting $150m, value-added $300m and high return $150m. There is a chance that more capital could be added to this program down the road.
The pension fund’s real estate staff and its consultant, The Townsend Group, worked on this allocation idea. A final decision on this allocation formula was made at the pension fund’s board meeting on September 13th.
John McClelland is the principal investment officer for real estate at LACERA. He said, “We think this kind of allocation fits in well with our investment style. One of our goals was to increase the amount we invest in non-core real estate. Right now, non-core assets makes up 20% of our $3.5bn real estate investment portfolio. When all of the initial allocation is invested, it will have increased to 27%.”
LACERA in the past had awarded its separate account managers a specific allocation with a certain type of investment mandate.
There will be a total of six managers that will have access to this capital. These are Capri Capital Advisors, Cornerstone Real Estate Advisors, Emmes Asset Management, Invesco Realty Advisors, TA Associates Realty and RREEF.
The capital will be available on a first come first serve basis with some restrictions. The real estate investment policy doesn’t allow for any separate account manager to hold more than 35% of the real estate allocation of LACERA. Two managers that are approaching this figure are RREEF and TA Associates.
LACERA has Emmes and Capri Capital as emerging managers. The pension fund’s real estate investment policy doesn’t allow emerging managers to have control of assets that exceed $300m of equity.
Core real estate typically means investing in office, industrial, retail and apartments that are established and leased properties. Value-added can mean putting equity into new development projects or buying existing properties that need to be re-leased or re-positioned.