Los Angeles City Employees’ Retirement System has the capacity to commit an additional $700 million to $865 million between now and 2022 in order to increase its real estate allocation to 7 percent of its total plan assets, targeting $140 million to $175 million per year over the next five years, according to an investment committee report presented to the pension fund by The Townsend Group, LACERS’ real estate consultant. Townsend recently presented LACERS with its proposed Real Estate Fiscal Year 2018–2019 Strategic Plan.
In April 2018, LACERS’ board adopted changes to its asset allocation targets, as advised by The Townsend Group. The impact to real estate was to increase capital from 5 percent of the total plan assets to 7 percent of the total plan assets.
Townsend was re-engaged by LACERS’s board in 2015 to serves as its real estate consultant. Since that time, Townsend has worked with LACERS’ staff to successfully transition the portfolio to reflect a more conservative risk profile. The investment strategy from 2015 to-date has emphasized $220 million of investment into core funds and $120 million into tactical noncore funds. LACERS has a target of 60 percent to core funds and 40 percent to noncore funds. Townsend recommended to focus on up to three incremental commitments in noncore, ranging from $35 million to $50 million per investment.
Townsend recommends LACERS target its commitments to preferred property types and regions based on LACERS’ portfolio exposure. These include:
Debt (mezzanine or preferred equity with kickers to provide equity-like returns with downside protection)
S. office (projected to be 7 percent underweight compared to ODCE by 2020; being highly selective with a proven office manager executing in high-conviction markets with strong demand-drivers)
S. retail (projected to be 4 percent underweight compared to ODCE by 2020; consider one investment with a proven high-street or grocery-anchored retail manager)
Other/niche (may include student accommodation, seniors housing or medical office)
Townsend said it will continue to work with staff to carefully manage LACERS investment exposure.