Orange County Employees to opt out of AEW core property fund

The Orange County Employees Retirement System is planning to exit its investment in the AEW Core Property Trust.

AEW has been producing the lowest gross returns of any of the core open-ended funds the pension fund has invested in, according to a board meeting document. 

The trust has returned 13.74% year to date, compared with a 17.28% return for ASB Allegiance Real Estate Fund, 15.2% for the JP Morgan Strategic Property Fund and 15.91% for the Morgan Stanley Prime Property Fund.

The pension fund had an investment in the AEW Core Property Trust valued at $242.1m (€211.1m) at the end of last year. 

There is room for Orange County to get out of the fund, as it has an entry queue valued at $111m and no deposit queue for the same time period.

The pension fund, according to a board meeting document, is planning a measured rebalancing of its core portfolio.

Scott Krouse, a consultant with RVK, which advises Orange County, wrote in a board meeting document that a measured, periodic redemption out of the fund would be done at a pace of $25m quarterly.

The capital could fund committed and future investments in non-core strategies.

A suspension of automatic re-investment of core fund dividends will divert around $25m annually out of US core real estate.

Orange County is also planning to reduce its exposure to REITs.

The pension fund has its REIT portfolio in the BlackRock Developed ex US Index Fund.

The pension fund is hopeful its actions will move the portfolio to a 50/50 mix between core and non-core over the next 24-36 months.

At the end of 2015, Orange County Employees had a core portfolio valued at $854.5m – or 58% of its total real estate assets.

Non-core was at $515m, or 34.8%, and REITs at $111m, or 7.5%.

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