ENGLEWOOD, Colo. - The Public Employees' Retirement Association of Colorado, Englewood, terminated four of its eight separate account real estate managers as part of its evolving strategy to make fewer direct property investments.
The $18 billion pension fund will make more of its real estate investments indirectly through commingled funds and partnerships, in real estate operating companies or in securitized debt and equity real estate, said Sol Raso, director of real estate.
The terminated managers are Boston-based Cabot Partners L.P.; L&B Real Estate Counsel, Dallas; San Francisco-based Metric Realty; and Prudential Real Estate Investors, Parsippany, N.J.
Prudential remains one of the system's commingled fund advisers. The terminated advisers, in total, managed about $106 million, said a fund spokesman.
Heitman Capital Partners, Chicago; INVESCO Realty Advisors, Dallas; LaSalle Advisors, Chicago; and The RREEF Funds, San Francisco, were retained. They manage a total of $817.4 million.
INVESCO and RREEF will assume investment management of the properties previously managed by the terminated firms, said Mr. Raso.
Performance was not a factor in the terminations, he said.
"The terminations were related to our separate account (strategy) and our need for less of them," said Mr. Raso. "Over the next five years, it is our intent to do less purchases of individual assets and do more fund investing."
Depth of service was the chief criteria applied during the process, according to Mr. Raso.
"We focused on our needs, which are for direct property investment services, indirect real estate product (such as real estate investment trust securities and commercial mortgage-backed securities) management and research," said Mr. Raso."The deeper they were, the better for us.
"Part of that was driven by our investment strategy that doesn't have us doing that much individual building buying," he said.
The terminated firms would receive consideration from the system if they had a fund in which it was interested in investing.
"We won't commit (now), but we will listen to them," he said. "They are a step ahead because we know them."
The retirement system has almost 8% of its assets in property-related investments. Its target allocation to real estate is 12%, said Mr. Raso.
"We have commitments in which money hasn't been called down," he said. "It is closer to 10% with the commitments."
Colorado Employees' is among a group of pension funds at the vanguard of investing in real estate operating companies, relatively liquid real estate securities and in partnerships that align the interest of client and adviser..
The Colorado system began investing in indirect forms of real estate about three to four years ago, said Mr. Raso. Direct property investments comprised about 90% of the portfolio four years ago; now, they are about 59%, said Mr. Raso.
Its indirect portfolio consists of investments in REITs, CMBS, opportunistic fund limited partnerships and real estate operating companies. Its partners and advisers for indirect real estate investments include: Phoenix Realty, Hartford; Apollo Real Estate Advisors, New York; Goldman, Sachs & Co., New York; Equity Institutional Investors, Chicago; Security Capital Corp., Santa Fe, New Mexico; Lazard Freres & Co. New York; Blackstone Group, New York; LaSalle; and Prudential.