Orange County Employees Retirement System (OCERS) is to put JP Morgan Asset Management’s Strategic Property Fund on its watch list for underperformance.
It is the latest open-ended core US real estate fund to be put on watch by the pension fund, which recently requested to withdraw its investment in the ASB Allegiance Real Estate Fund, also due to underperformance.
According to an OCERS board meeting report, the Strategic Property Fund has returned 8.3% since the pension fund first committed $100m in 2014, underperforming the NFI-ODCE index, which returned 9.2%.
OCERS, whose investment in the fund has risen to $148m, said the fund had also underperformed during the first quarter of 2019 and over one and three-year periods.
JP Morgan Asset Management declined a request for comment.
OCERS attributed the underperformance to overweight positions to the office and retail sectors and being underweight industrial and apartments.
Office assets make up 37.3% of the fund (versus 33.9% for the NFI-ODCE index), retail represents 24.8% (versus 18.3%) and industrial comprises 14.1% (versus 18.3%).
JP Morgan is seeking to increase the fund’s weighting to the industrial sector. Late last year the Strategic Property Fund invested $400m in an industrial fund managed by Black Creek Group.
Orange County plans to continue to rebalance its $790m of open-ended core US real estate fund investments during the 2020 fiscal year, which includes stakes in AEW Core Property Trust, Jamestown Premiere Property Fund and the Morgan Stanley Prime Property Fund.
This excludes OCERS’s investment in ASB Allegiance Real Estate Fund, which has risen to $171m and is still waiting to be redeemed.