The Los Angeles County Employees Retirement Association (LACERA), which has been reducing the size of its real estate portfolio, plans to change how it allocates capital to its separate account managers.

Currently, LACERA’s five real estate separate account managers are able to deploy capital on a “first come, first served” basis, but this is set to change, according to a board meeting report.

Rather than allocating capital per risk category – core, value-add and opportunistic – and making it accessible to all managers, the pension fund has recommended giving each manager a set amount.

The investment team at LACERA, led by John McClelland, has recommended this approach to the investment board partly to help more closely monitor the performance of separate account managers.

In the board meeting report, the pension fund said that “by eliminating any concerns by the managers that they need to ‘race to the capital’, they may be more deliberate in investment selection for the portfolio”.

It added: “They can focus more on their property and sector strengths, waiting for investment opportunities that best fit rather than chase the first deals that are available.”

The move comes at a time when LACERA is seeking to reduce the overall size of its real estate portfolio. In May, IPE Real Assets reported that the pension fund was on track with its plan to be a net seller in the asset class.

Separate account managers will also be able to reinvest sale proceeds, which LACERA hopes will discourage them from holding onto assets.

“Giving the manager’s reinvestment rights creates better alignment of interest with LACERA,” the report said. “Managers will not be reluctant to sell assets since they can reinvest in other, perhaps better performing properties.”

One of its separate account managers, Clarion Partners, recently sold Glendon, a mixed-use property in California, to Douglas Emmett and Qatar Investment Authority for $365m (€323m).

It has been proposed that Clarion Partners will be allocated $150m, while Heitman and Stockbridge will each receive $50m.

Some of the proposed separate account allocations are contingent on the managers selling certain existing investments. DWS and Invesco Real Estate will each be allocated $50m on this basis.

The pension fund has also previously disclosed that it plans to rely more heavily on real estate funds. In the latest board report, it said “committing capital to commingled funds is a more effective way to control risk by category”.

It said that “using more commingled funds will result in the size and/or number of separate accounts being reduced”. LACERA anticipates “maintaining four to five actively managed separate accounts”, each managing $500m to $700m.