Open-end funds promise liquidity but can't provide liquidity in downturns when investors want it, except for the limited number of specialized, property type-specific open-end funds, Mr. Mammen said.
"The reason it is very difficult to get out right now is that there are lots of questions regarding valuations," he said.
RCLCO clients typically invest in separately managed accounts or joint ventures due to the lack of liquidity, control and high expense of commingled funds, he said. However, separate account managers, especially those with existing properties acquired in late 2019 and early 2020, are having the same challenges, Mr. Mammen said.
Investors are more interested in separate accounts that are blind pools and not accounts with pre-existing assets that could have been purchased when prices were at their peak, he said.
Investors in real estate separate accounts have the ability to pause investments but so far, few institutional investors have done so because there have been so few transactions, he said.
"But the LPs are absolutely talking to GPs about their concerns," Mr. Mammen said.
A few clients are discussing a change of investment guidelines with their separate account managers that would allow the accounts to invest in other strategies such as debt or loan-to-own programs.
"In those cases we want to make sure those are viable strategies, will materialize and the manager has the expertise," he said.
Pensions & Investments' searches and hires database reveals that investors this year have committed a total of $10.1 billion to 105 real estate strategies through June 10, compared with $17.6 billion to 151 investments in the first half of 2019. Meanwhile, investors terminated $2.5 billion worth of real estate investments in 2020 through June 10, compared with more than $2.2 billion in terminations in all of 2019, P&I's database shows.
Meanwhile, the Los Angeles County Employees Retirement Association is waiting to complete a real estate portfolio restructuring due to the COVID-19 crisis, a presentation to the real asset committee on June 10 shows.
"Given there is much uncertainty on how people interact with physical space (due to COVID-19) and we are currently overweight real estate, we have time in order to thoughtfully come back to the board with recommendations regarding the investment strategy," said Jonathan Grabel, CIO of the Pasadena, Calif.-based $56.9 billion pension fund, in an interview.
LACERA is reconsidering its heavy use of separately managed accounts, which has produced a concentrated portfolio that has underperformed, Mr. Grabel said at the real asset committee meeting. Some 82% of the $5 billion real estate portfolio is in separate accounts. LACERA began investing in separate accounts to gain more control over their portfolio. Instead, many of LACERA's separate accounts are designed so that most of the control over the assets, such as buy-sell decisions, have been delegated to the managers, he said. In LACERA's separate account program in real estate, the pension fund owns nearly 100% of about 125 properties, as opposed to partial ownership of many more properties in a commingled fund, for example.
"The concentrated nature of this program could result in a lumpy return profile. In other words, we have single-asset risk," Mr. Grabel said.
Over the one, five and 10 years ended Dec. 31, LACERA's real estate portfolio underperformed the NFI-ODCE benchmark and its peers, he said.
Mr. Grabel suggested LACERA's board consider a mix of separate accounts, commingled funds and hybrid structures such as club deals with like-minded investors. What's more, LACERA officials need to be more active in portfolio design, he said.
