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  • San Joaquin County Employees’ Retirement Association

    C tl d P t LtdCourtland Partners, Ltd. Institutional Real Asset Advisor

    Real Estate Strategy and Proposed Implementation Plan – June 2017

  • Table of Contents

    1- Real Estate Strategy, Courtland Portfolio Model, and Proposed Implementation Plan

    2- Real Estate Securities

    3 R l E t t M k t C diti3- Real Estate Market Conditions

    1 | Courtland Partners, Ltd.

  • Strategy and Implementation

    1 – Real Estate Strategy, Courtland Portfolio Model, and Proposed Implementation PlanModel, and Proposed Implementation Plan

    2 | Courtland Partners, Ltd.

  • SJCERA Current Real Estate Exposure Total SJCERA Plan Assets $2.5 billion

    Over 20% of the

    Total SJCERA Plan Assets $2.5 billion

    Real Estate Equity MV, 12/31/16 (mil) % of SJCERA

    Private - Core, Value and Opportunistic 255.8$ 10.2%

    Public - Domestic and International 57.5$ 2.3%

    SJCERA Plan is invested in real estate

    related assets

    Total 313.3$ 12.5%

    Real Estate Debt MV, 12/31/16 (mil) % of SJCERA

    Doubleline (Mortgage Backed Securities) 71.6$ 2.9%

    PRIMA (Commercial Mortgages) 96.7$ 3.9%

    Mesa West Funds (Leveraged Com. Mortgages) 27.3$ 1.1%

    Total 195.6$ 7.9%

    Real Estate Equity Real Estate Debt  Estimated Unfunded Commitments = $58 mil.

    • Includes $30 million GAP VIII commitment  Distrib tions are e pected to increase

     Interest income is being distributed as earned  New $50 million commitment to Mesa West IV

     Distributions are expected to increase: • 2007-2009 vintage funds • Assets ready for disposition

    will increase exposure

    3 | Courtland Partners, Ltd.

  • SJCERA Private Real Estate Portfolio

    E i tin Cl d End M n r P t nti l f r In tm nt in N t F ndExisting Closed-End Managers - Potential for Investment in Next Fund Manager New Fund in the Market? Attractive Opportunity? Almanac Later in 2017 Yes

    Angelo Gordon 2018 Yes Colony Probably within next 18 months Maybe

    SteelWave No N/A

    4 | Courtland Partners, Ltd.

    Sarofim No N/A Greenfield No N/A

    Miller Global Yes Unlikely Walton Street No N/A

  • Results of 2016 Implementation Plan

    2016 Objective Result Comments

    Private Real Estate: Commit up to $60 million in Private Real Estate, adding Value-Added or Opportunistic to the portfolio

    • $30 million commitment to GAP VIII

    Maintains portfolio’s opportunistic exposure

    Public Real Estate: Monitor and consider rebalancing

    • No activity in 2016 None

    where appropriate

    5 | Courtland Partners, Ltd.

  • Policy Risk/Return Targets

    Investment and Portfolio Risk/Return Ranges

    Risk/Return Nominal Net Return Actual

    Exposure 12/31/16

    Projected Exposure

    Per Model**

    Target Tactical

    Allocation Policy Range

    Core 6.0%-8.0% 48% 61% 40% 10-70%

    Value 9.0%-11.0% 28% 22% 40% 10-60%

    Opportunistic 13.0%+ 24% 17% 20% 10-40%

    REITs* 18% 23% 0-30% 0-30%

    * Domestic REITs included as Core; International REITs included as Value. ** Projected exposure includes $30 million commitment to GAP VIII and does not include any new 2017/2018 allocations.

    Maintain the Target Tactical Allocation: Core 40%, Value 40% and Opp. 20%

     Consistent with activity over past few yearsy p y

     Continue to believe this long-term target best meets SJCERA’s objectives for real estate

     Continue to seek managers with a strong current income component

    6 | Courtland Partners, Ltd.

  • Courtland Portfolio Model

     Courtland sent out questionnaires to each manager requesting portfolio data forecasted over the 2017 – 2020 periods based on in place business plans.  Expected capital calls

    E t d it l di t ib ti Expected capital distributions  Property type diversification  Geographic diversification

     C tl d il d thi d t i t fi i l d l t d t i tf li Courtland compiled this data into a financial model to determine portfolio exposures (e.g., risk/return strategies, property type, geographic) over the next several years.

     The results on the following slides illustrate the projected portfolio with and without new investment allocations over the next several years.

     The Model does not make any income accrual or appreciation assumptions for individual investments.

     Current real estate exposure is 12.5%. Assuming no new investments are made the exposure is projected to be 11% (2017), 10% (2018), 10% (2019), and 9% (2020).

    7 | Courtland Partners, Ltd.

  • SJCERA Historical Capital Contributions

    Gross Capital Contributions Since Inception

    80 $

    50

    60

    70 $ Millions

    10

    20

    30

    40

    -

    10

    2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

    Source: Courtland Partners

    • For private and public real estate equity investments only

    8 | Courtland Partners, Ltd.

  • Portfolio Model- Allocation Exposures

    Portfolio With New 2017 and 2018 Allocations

    70% 2016 2020 2020 w. New

    48%

    28%

    61%

    47%

    33%40% 50% 60% 70%

    28% 24%22% 17% 20%

    0% 10% 20% 30%

    Note: Core includes U.S. REITs; Value includes Non-U.S. REITs; Excludes Mortgages

     Model assumes $60 million in allocations to Value and $30 million in allocations to Opportunistic in 2017 and 2018 No future year allocations are assumed at this time

    Core Value Opportunistic

    Opportunistic in 2017 and 2018. No future year allocations are assumed at this time.

     If all $90 million is allocated to Value, the exposures would be 47% Core, 40% Value, and 13% Opportunistic.

     Current real estate exposure is 12.5%. Assuming proposed 2017-2018 allocations are made the exposure is projected to be 11% (2017) 11% (2018) 12% (2019) and

    9 | Courtland Partners, Ltd.

    are made the exposure is projected to be 11% (2017), 11% (2018), 12% (2019), and 12% (2020).

  • 2017 and 2018 Proposed Implementation Plan

    Long Term Potential NewLong-Term Target 2017 and 2018

    Objectives

    Potential New Allocations Managers

    Core 40% Continue to monitor domestic REITs.

    None None

    Value 40% Consider opportunities with a strong current income component and long-term return potential.

    Up to $90 million Up to three managers

    Opportunistic 20% Consider unique opportunities Up to $30 million Up to one managerOpportunistic 20% q pp that expect to capitalize on market opportunity.

    p p g

    REITs 0%-30% Standard monitoring of allocation for potential modifications.

    $0 N/A

    International 0%-20% Consider funds with international exposure. Consider moving some of the domestic REIT position into international REIT.

    Part of value and opportunistic

    T t l Up to $90 millionTotal Up to $90 million

    • Maintain flexibility within REITs based upon market conditions • No region/sector specific needs that must be addressed with new allocations; however, monitor industrial exposure levels when

    considering new opportunities • Courtland will bring opportunities for SJCERA’s consideration throughout the year and will consider opportunities with existing

    10 | Courtland Partners, Ltd.

    managers

  • Portfolio Model - Property Type Exposures

    Portfolio With New 2017 and 2018 Allocations

    *Includes mixed-use, self-storage, operating companies, senior housing, CMBS, private debt, land, timber, and healthcare. ** Impact of potential increased allocations is not material on expected exposure due to the generic funds included in the model.

    11 | Courtland Partners, Ltd.

  • Portfolio Model - Geographic Exposures

    Portfolio With New 2017 and 2018 Allocations

    *Impact of potential increased allocations is not material on expected exposure due to the generic funds included in the model.

    12 | Courtland Partners, Ltd.

  • Portfolio Model - Public/Private Exposure

    Portfolio With New 2017 and 2018 Allocations

    • Public market values held steady throughout the modeling process

    13 | Courtland Partners, Ltd.

  • U.S. Investment Themes Strategies and ThemesStrategies and Themes  Build out a more defensive portfolio via the inclusion of income and recession-resistant strategies.  Core equity pricing is competitive as pricing for prime location, high quality assets currently exceeds pre-GFC peak levels.  Selectively consider core-plus opportunities where the manager is focused on going-in yield and lower property cost versus fully

    valued core properties.  Consider debt-oriented strategies that are protected by 25%-35% borrower equity in a first loss position.Consider debt oriented strategies that are protected by 25% 35% borrower equity in a first loss position.  Seek opportunistic funds that provide liquidity to sectors of the market that are most in need of capital; examples are financial

    institutions in need of recapitalized balance sheets.

    Retail Industrial Office Multifamily Debt Other

    • Focus on necessity- • In

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