Retirement Systems has approved $80m (€58.7m) of commitments to non-core real estate strategies.
The pension fund will invest $40m in Greenfield Acquisition Partners Fund VII and $40m in Lubert-Adler Real Estate Fund VII.
The former, managed by Greenfield Partners, is an opportunity fund that will focus mainly on the US but can invest in Europe and South America.
Greenfield Partners is seeking to raise $750m for the strategy and is targeting returns of 13% (net) and 15% (gross).
The fund favours office and industrial assets and will consider investing some capital in student housing developments.
Lubert-Adler VII will invest in apartments, retail, hotels and industrial assets in the US.
The fund’s manager is seeking to raise capital in the range of $500m to $850m.
Los Angeles City Employees’ Retirement System is planning to invest as much as $230m in real estate over several years as part of a new annual investment plan.
As much as $140m will be allocated to core investment and up to $90m will be available for non-core investments.
The pension fund will invest through commingled funds, including open-ended and closed-ended vehicles, and can include international as well as domestic investments.
According to a board meeting document produced by the pension fund’s consultant The Townsend Group, healthy supply-demand fundamentals should ensure that core real estate assets provide a hedge against inflation.
The low cap rates being paid for core assets are justified given the low interest rate environment, it stated.
Townsend also said there was an opportunity to invest in non-core assets that had been mispriced by the market.
Demand and supply fundamentals had started to improve and these assets provided a good valuation and low, but rising, income growth profile, it was stated.
Townsend has recommended favouring sector specialists over generalist real estate managers when seeking exposure to non-core property.
The consultant also showed a preference for seed portfolios when investing in non-core assets as way to minimise risk and provide better visibility.
Los Angeles City had a real estate portfolio valued at $722m at the end of 2013. The pension fund has a targeted real estate allocation of 5%.
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