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Pension Funds

Orange County sets real estate pacing, places 2 managers on watch

Orange County Employees Retirement System, Santa Ana, Calif., plans to make up to three new commitments of $125 million to $175 million total to core real estate and up to four commitments ranging from $75 million to $125 million total to non-core real estate in fiscal year 2019 under a new preliminary real estate investment plan, Robert Kinsler, spokesman for the $15.7 billion pension plan, said in an email.

OCERS is also rebalancing its $1.2 billion real estate portfolio to a mix of 60% core and 40% non-core. Currently, about 80% of its portfolio is in core and 20% in non-core. OCERS executives plan to selectively redeem capital from existing open-end core fund investments as prudent, said a memo by OCERS real estate consultant Townsend Group.

"With a 7% rate of return target for the total plan, Townsend does not believe that the current portfolio construction will allow OCERS to reach its investment goals," the Townsend memo noted in its recommendation to increase the non-core allocation.

The real estate plan calls for increasing exposure to industrial to as much as 18% by year-end 2022 from its current weighting of 10% of the real estate portfolio; maintaining its 25% in residential; decreasing office to as much as 32% by Dec. 31, 2022, from 40%; and retail to a projected 15% from 18%, with the remaining in other. OCERS would also consider investing in a limited number of niche sectors such as student housing, medical office and entity-level investments such as investments in real estate operators, developers and money managers.

Separately, OCERS placed ASB Real Estate Investments on watch over performance in the open-end fund ASB Allegiance Real Estate Fund in 2016 and 2017, despite strong performance at the outset of OCERS' investment in 2013 through 2015, Mr. Kinsler noted. The fund has $161.6 million in plan assets.

OCERS also placed Pictet Asset Management on watch for personnel reasons; Pictet manages $284.6 million in a local currency emerging markets debt strategy. In May, Pictet executives informed OCERS officials that Simon Lue-Fong, head of global emerging market debt, had resigned.