REAL ESTATE - The Los Angeles Fire & Police Pension System has committed capital to a real estate commingled fund and agreed in principle to establishing an annual allocation for real estate.
The pension fund approved a $30m (€22.4m) commitment to the Prudential Property Investment Separate Account II (PRISA II), an open-ended commingled fund.
It looked at allocating capital to three commingled funds for its recent board meeting, with PRISA II being the only commingled fund to be approved.
The pension fund’s real estate consultant is The Townsend Group, whose principal Micolyn Yalonis said: "The pension fund board felt the most comfortable from a risk and manager standpoint with PRISA II."
The other two commingled funds were CityView LA Urban Land Fund I and Forum Asian Realty Income Fund II. The CityView fund will be considered for a possible $15m commitment at the pension fund’s April meeting, while the other fund will not be considered again.
The real estate manager for PRISA II is Pramerica Real Estate Investors. The commingled fund has been operating since 1980 and has a unique capital raising strategy. Though structured as an open-ended commingled fund, it is not open to investors all the time.
Total gross assets in the commingled fund are $6bn, with $4.2bn of net assets.
PRISA II had two prior re-openings. In 2000 it raised $495m and $500m in 2004. This time around it is hoping to raise a total of $2bn from existing and new investors. The commingled fund’s return goals are to exceed the NCREIF Property Index by 200 basis points over a complete market cycle. It has done this in 21 of the fund’s 26 years. It has an average annual return of 12.02%, beating the benchmark by 62 basis points.
PRISA II looks at buying existing properties and making forward commitments for the development of new assets. There are 55 properties in the forward commitment pipeline that will require funding of around $2.8bn over the next couple of years.
The focus is on investing in the four main US property types, but has explored some new property types, such as self-storage.
Los Angeles Fire & Police has agreed in principle to establish an annual allocation for real estate. The amount for 2007 is $350m. The pension fund will have the capability to alter the amount from one year to the next. Some of the factors affecting the allocation will be how the overall pension fund portfolio performs and how much capital gets invested during the previous year in real estate.
Los Angeles Fire & Police has invested well short of its 9% targeted allocation for real estate. The pension fund has funded $990.3m in real estate or $6.74% of total assets. The total amount committed to real estate is currently $1.196bn or $8.14% of total assets. The annual allocation would get the pension fund to 9% in real estate by the end of 2010.