Los Angeles Fire and Police Pensions has approved a three-year contract with Principal Real Estate Investors for a global REIT manager relationship.

The decision was made on the recommendation of consultant RVK – and despite underperformance in the first half of this year.

The current contract with Principal expires on 30 November.

The 2016 year-to-date performance, as of 30 June, trailed the FTSE EPRA/NAREIT Developed Index benchmark by 368 basis points, according to a board-meeting document.

LA Fire and Police wrote in a board-meeting document that the recent performance was affected by being overweight the UK, stock selection in Japan and a quality bias that produced lower yields.

The overall exposure in Europe is 14.3% compared with 11.9% for the same region by the benchmark.

The pension fund’s investment staff believe that, over a full market cycle, the firm’s performance versus its peers should improve.

Staff will continue to monitor performance and return to the board if there is continued deterioration in Principal’s performance.

Principal manages a REIT portfolio valued at $175m (€160.1m), as of September.

It typically targets a portfolio size of 85-95 securities.

Property sectors are managed to be no more than 10% overweight or underweight relative to the benchmark.

Trading turnover for the portfolio was 39.9% in 2015.

Principal’s investment mandate is to invest in REITs on a domestic and global basis.   

Los Angeles Fire and Police has passive exposure within the global REITs portion of the portfolio, with around 40% managed by AllianceBernstein.