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The Real Deal Los Angeles

L.A. Fire and Police Pension board considers in-house real estate management

Direct investment plans rarely used for U.S. pension systems
January 29, 2019 10:00AM

(Credit: Wikipedia)

The Los Angeles Fire and Police Pension board is considering managing its own real estate portfolio, a rare step for a public pension plan.

The board directed its staff and consultant Townsend Group to study the feasibility of a direct investment arm for its $2.12-billion real estate portfolio, Chief Investment Officer reported. Cutting out third-party firms would benefit the portfolio by eliminating management fees.

It would be an unusual step, as the vast majority in the country’s pension plans invest via third-party managers. Less than 5 percent of Townsend’s clients use internal management.

One exception is the teachers’ retirement system for Ohio, which is one of the top-20 largest pension plans in the country. Approximately 85 percent of its $7.9-billion real estate portfolio is managed internally.

If LAFPP’s $22.3-billion pension fund establishes a direct investment strategy, it would be restricted to U.S. markets, and it would only comprise a portion of the real estate portfolio.

The board also announced LAFPP invested in two additional real estate funds. It committed $35 million to the open-ended Kayne Anderson Core Fund, which focuses on medical offices, senior housing, student housing and self-storage, and another $35 million to the retail-focused Asana Partners Fund II.

In October, LAFPP instructed fund manager AEW Capital Management to buy $100 million in new assets, and sell off older assets in secondary markets this year.

LAFPP serves more than 26,300 members. The system’s rate of return on investment for 2017-18 was 9.91 percent. [CIO]Gregory Cornfield