REAL ESTATE – The Los Angeles County Employees Retirement Association has decided to increase the investment capabilities of one of its separate account real estate managers, Cornerstone Real Estate Advisers.
The pension fund has decided to allow the real estate manager to pursue real estate investments that have a core or value-added strategy. In the past, Cornerstone had only had an investment mandate for hotels.
John McClelland is the principal real estate investment officer for Los Angeles County. He said, “Cornerstone has done a good job managing the hotel assets for us the past three years. We think it’s time to take this relationship to include more property types and kind of transactions.”
The pension fund took this action at its board meeting on August 9th. The pension fund was assisted in this decision by its real estate consultant, The Townsend Group.
Los Angeles County has four hotels that it owns through Cornerstone. These properties have a current value of approximately $300m.
The pension fund has defined core as investing in established leased assets that are office, industrial, retail and apartments. Value-added could be other property types and up to and including investing equity in new development projects.
Cornerstone has now joined three other separate account managers that have a core and value-added investment mandate. These are RREEF, TA Associates Realty and Invesco Realty Advisors.
In the past, Los Angeles County had awarded a specific amount of capital to each manager. This was the way it conducted business with all of its separate account managers.
The pension fund is planning to change this in the future. At its September 13th board meeting, the pension fund will discuss a new way to allocate capital to its single account managers. McClelland said, “We are hopefully going to approve a new way to allocate capital.”
Many of the large state pension funds in the US have several ways it can allocate capital to separate account managers. One is to award a specific allocation to each manager. There can be a pooled allocation where all of the managers compete for a pool of capital. There also could be a performance-based allocation. A manager is given a specific allocation for the first year. A future allocation is given, based on the performance of the portfolio of each manager.
Los Angeles County now has a 10% targeted allocation for real estate. It’s right at the allocation level now. The pension fund has total assets of $34bn.