UNITED STATES- Los Angeles Fire and Police Pensions has placed Heitman Capital, Sentinel Real Estate and Urdang Capital on watch after underperforming the pension fund's benchmark.
The Los Angeles Fire and Police pensions body is required under its pension fund real estate policy to place managers on watch if they have not met or exceeded their benchmark in any given year. Manager performance is then reviewed each year for up to two years before a decision is made.
The pension fund uses the NCREIF Property Index as its benchmark for investing in private real estate on a separate account basis. However, Heitman underperformed the one-year benchmark by 18.2%, as its return was -37.8% against the index return of -19.6%.
Similarly, Urdang's one-year return was -25.8% while Sentinel delivered -24.2% on investment.
The assets of these three managers were externally appraised at the end of June and led to a 33.1% write-down on the pension fund's real estate portfolio.
Heitman manages five properties then valued at $90.2m (€61.1m) while Sentinel looks after eight properties worth $170.9m and Urdang takes care of four properties worth $94.7m for the pension fund.
Officials at the pension fund believes its separate accounts will perform better in the future as the recession has affected the current performance of the assets but none of the assets are in jeopardy of foreclosure.
Interestingly, however, Los Angeles Fire and Police did sign new three-year contracts with each manager at the same December board meeting, although officials say one of these contracts could be short- lived as the pension fund investment staff, assisted by real consultants The Townsend Group, are working on its investment plan for 2010.
Part of the 2010 review is expected to include an eventual reduction in the number of real estate separate account managers from three to two, although no timetable for change has been set so far so managers could get just 30 days warning.