UNITED STATES – Orange County Employees Retirement System is to commit $175m (€134m) in capital to the JP Morgan Strategic Property Fund and $125m to the ASB Allegiance Real Estate Fund.
The two open-ended core real estate funds were shortlisted along with the UBS Trumbull Property Fund and the TIAA-CREF Asset Management Core Property Fund from an original list of 21 candidates drawn up by consultant RV Kuhns & Associates.
Orange County faces a wait of up to 12 months before its capital is invested by the JP Morgan fund due to a $1.44bn entry queue. The ASB Allegiance fund, meanwhile, has no entry queue.
The pension fund is projecting to achieve an 8-10% return from the ASB Allegiance fund and a yield of 100bps over the NCREIF Property Index for the JP Morgan fund.
According to RV Kuhns documents, the ASB Allegiance fund, formed in 1984 and currently holding $2.6bn in assets, had the best relative performance in its database, outperforming the NCREIF Open-Ended Diversified Core Index for one, three, five and 10-year periods.
The fact that the fund manager has no active separate account business that could potentially compete with the commingled fund for deals was also cited as an added benefit.
The JP Morgan fund is much larger at $23.1bn enabling the manager to achieve a high level of diversification and exposure to trophy assets.
Orange County's real estate portfolio was valued at $925m at the end of June 2012, having invested 9.8% of its overall $9.4bn investment portfolio in the asset class. It has a target allocation of 10%.
In other news, California State Teachers Retirement System (CalSTRS) has made an additional $100m investment in the Community Retail Development Fund joint venture managed by Sarofim Realty Advisors.
The commitment could grow to as much as $250m in the coming years as the pension fund seeks to increase its underweight exposure to the retail sector.
The first transaction for this new capital will be an investment in the South Gate retail project located seven miles southeast of downtown Los Angeles.
Ricardo Duran, information officer at the pension fund, said the strategy was to invest in developments and value-add opportunities with a view to producing core assets.
He said this would result in range of investment yields, from 15% during the initial riskier phases to 7-9% during the core phases.
The investment strategy is to invest in underserved retail communities in urban areas in California.
CalSTRS holds a 95% ownership stake in all assets that are in the Retail Development Fund, with the remainder held by the relevant developer/operating partner.