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Orange County Employees Move Global REIT Mandate to BlackRock

02/11/2013 | By Jon Peterson

Orange County Employees Move Global REIT Mandate to BlackRock

The Orange County Employees Retirement System has chosen to move its entire global REIT portfolio from LaSalle Investment Management to the BlackRock developed ex-US Real Estate Index Fund.

The portfolio was valued by the pension fund at $104.3 million at the end of 2012. The final decision to move the portfolio was based on the recommendation of the pension fund’s real estate consultant, RV Kuhns & Associates, and was made at a January board meeting. The pension fund cited a need to have a true international strategy for REITs and underperformance among the reasons for the change.

Scott Krouse, a consultant with RV Kuhns, noted that an ex-U.S. strategy provides an international real estate exposure that the pension fund said it does not obtain elsewhere in its real estate portfolio. Additionally, under LaSalle’s management, the portfolio underperformed in several investment periods, according to Krouse.

Orange County Employees also said it believed it could get lower fees by investing in an index fund than through an active separate account manager. 

David Beeson, financial analyst for the pension fund, wrote in a board meeting document that an indexed international mandate will cost the pension fund 12 basis points annually in management fees. This would result in savings of $230,000 per year compared to keeping the portfolio with LaSalle, assuming similar assets under management.

Orange County moved into global REITs for the first time in June 2007 with the hiring of LaSalle. The real estate manager was awarded a $75 million allocation. The relationship was expanded twice over the next four years. A $10 million allocation was awarded to the account in June 2009. Another $10 million was added in March of 2011.

The pension fund has a 10 percent targeted allocation to real estate. For this portfolio, 10 percent is allocated to global REITs, which is now fully invested. Orange County Employees have a total real estate portfolio valued at $917 million, or 9.4 percent of its $9.7 billion of total plan assets through the end of September 2012.

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