By Muskan Arora
Before evacuating away from the Los Angeles wildfires, the $82.2bn Los Angeles County Employees Retirement system revealed its appetite of over $2bn for real estate in 2025, and also disclosed plans for investing in emerging managers (EMP) within the space.
As the EMP search is nearing its end, the
managers will be benchmarked to the same benchmark for core and non-core
strategies. The staff will be provided with a full report in early 2025.
“The EMP seeks a proper balance between the potential for higher returns available from select emerging managers, and the higher risks—both investments related and operational—associated with less established firms,” as stated in the recent meeting materials.
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Core real estate
The outperformance of the core real estate bucket
last year, which was driven by the industrial sector, has allowed the pension
plan to take more risk.
The system has earmarked up to $1.5m allocations
for its core real estate sleeve, as per the recent meeting materials.
This has resulted in an expansion in the
allocation range of sectors from 19%-49% to 14% to 54%, as noted in the recent
board meeting materials.
Within the bucket, the system is bullish
towards apartments, retail and a slight increase in office exposure, alongside
plans to increase investments in the US.
With the target allocation of 5%, the system
plans to commit to 6 to10 core real estate vehicles through 2027, with a ticket
size ranging between $100m to $600m.
The core real estate portfolio returned 0.4%
for its QTD against the benchmark of -0.7%.
For its 1-year period, the portfolio
returned -3.1% against the benchmark of -10% as of September 30, 2024.
Non-core real estate
Throughout last year, non-core real estate
funds underperformed, except for investments made in sectors including student
housing, industrial, life sciences and data centers.
This resulted in plans for increased
exposure to these sectors for allocations in 2025.
Funds with higher exposure to development had
negative returns owing to “project delays due to COVID,” along with a few opportunistic
funds which haven’t produced income higher than expenses.
“Invest in Office outside the U.S. where it
continues to be attractive, as high quality, well-located offices in Europe and
Asia still have strong demand,” stated the meeting materials.
With a pacing of up to $600m and target
allocation of 2%, the bucket currently stands at 1.4% with an expectation of reaching
the target allocation by 2027.
The system has outlined commitments to 6 to
10 vehicles through 2027, with a ticket size ranging from $50m to $200m.
For 2025, the system further plans to expand
its investments in Northern America, with an increased appetite for diverse
managers.