Los Angeles City Employees’ Retirement System (LACERS) is planning to redeem its $46m (€40.9m) investment in a real estate fund managed by Pramerica Real Estate Investors.
The pension fund, which is being advised by The Townsend Group, wants to leave PRISA II due to its performance and management fees, according to a board meeting document.
It shows that the core real estate fund’s return since inception has been 250bps below its benchmark (NFI-ODCE Gross-plus 100bps). LACERS originally made a $30m commitment to PRISA II in May 2004.
LACERS is also concerned with plans by Pramerica to increase annual management fees.
Townsend told LACERS that it was increasing its fees from 92bps to 117bps to bring them closer to other comparable funds and attract and retain talent within the organisation.
However, the pension fund argues that Pramerica is charging fees that are more appropriate for a value-add strategy while PRISA II is more akin to a core fund.
Around 83% of the fund’s $7.8bn of assets are core holdings and, LACERS argues, the portfolio will generate more of a core-like return.
Pramerica did not comment.
The fund is allowed to invest up to 35% in non-core assets, but the portfolio is significantly under this target – even when accounting for non-core investments expected to be made in the future. Projections suggest the portfolio will maintain its current exposure for the next two to three years.
The exit from PRISA II will also bring LACERS more in line with its objective to have 60% of real estate portfolio in core investments. At the end of September 2015, the pension fund had 54.2% invested in non-core and 43.9% in core. The redemption from the fund would result in a net 1.9% reduction in its non-core weighting.
Other investors are waiting to enter PRISA II, representing $239m of capital, which should enable LACERS to exit without creating liquidity problems.