REAL ESTATE – The Los Angeles Fire & Police Pension System has approved an investment in a commingled fund and signed off on some emerging manager guidelines.
The pension fund has committed to invest $25m into the ABR Chesapeake Fund III. This is a commingled fund that is managed by Alex Brown Realty Inc.
The pension fund is expected to achieve a net IRR of 12% to 14%. The fund manager has previously raised capital for five other commingled funds with a similar investment strategy. The returns on these funds are projected to be a 14% net IRR.
Los Angeles Fire & Police thinks that the manager has a good track record with its previous funds. The latest commingled fund is the first time that the manager has attempted to raise capital from pension funds.
The pension fund likes that the commingled fund looks at some specialized property types. Two examples of this are hotels and student housing. These property types are attracting less capital than are the core property types of office, industrial, retail and apartments.
ABR Chesapeake Fund III is a value-added fund. Its investment strategy includes development, redevelopment, rehabilitation, enhanced management, repositioning and financial restructuring.
Alex Brown Realty is hoping for a total equity raise of $250m. The maximum portfolio leverage allowed for the fund is 65%. Most of the transactions for the fund will be in the neighborhood of $5m to $20m.
Los Angeles Fire & Police has now approved a set of criteria to allow them the possibility to invest with emerging managers in the future. One of these is that the manager has to have at least $100m under management in the selected strategy. The capital to be allocated may not exceed 35% of the firm’s total assets under management and no more than 20% of the capital raised for a specific commingled vehicle. No client can represent more than 50% of the management firm’s total assets under management.
These guidelines were setup with the help of the pension fund’s consultant, The Townsend Group. Its goal with this criteria was to favor participation of a larger group of managers in the selection process, rather than to exclude candidates.
Los Angeles Fire & Police now has total assets of $13.6bn. The total real estate allocation is 10%. The amount invested on a cash basis is 6.6% of total assets. The amount committed to real estate investments is close to 10%.