UNITED STATES - Orange County Employees Retirement System has started the process of investing in commingled real estate funds and moving away from separate accounts.

Its first commitment to this commingled fund strategy was to allocate $25m (€16m) each into the core open-ended Prime Property Fund and the AEW Core Property Trust at its board meeting on June 16.

The pension fund decided earlier this year that it wanted to move away from separate accounts as officials believe commingled funds offer more diversification through the ownership of more assets as well as having better access to the direct real estate markets.

Orange County is expecting to achieve an 8- 10% IRR on its commitment for the Prime Property Fund - a $12.8bn commingled fund managed by Morgan Stanley Real Estate which has now been around for more than 25 years.

It is unsurprising, therefore, the reason Orange County invested in this fund was its strong long-term track record, a well-diversified portfolio, depth and dynamics of the investment team and quality of assets in the portfolio.

The Prime Property Fund mostly invests in the main property types of office, industrial, retail and apartments in the United States.  It has made some investments in specialty property types.  One example of this was with self storage.

The AEW Core Property Trust, meanwhile, is one of the newest core open-ended commingled funds in the marketplace and total assets of $132m.

The thinking at Orange County behind this selection was therefore very different, as officials were attracted by its discounted fee structure, existing manager relationships and strong research-driven investment process.

The pension fund will allocate an additional $75m to this commingled fund by December this year.

The other two finalists for this search ING Clarion Partners and Pramerica Real Estate Investors.

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