The Los Angeles City Employees’ Retirement System (LACERS) is seeking to boost portfolio returns by expanding its investments in opportunistic real estate. This strategic shift reflects the fund’s effort to adapt to evolving market conditions and strengthen long-term financial sustainability through higher-risk, higher-reward real estate allocations.
What Is LACERS?
LACERS (Los Angeles City Employees’ Retirement System) is the public pension fund responsible for managing the retirement benefits of over 26,000 current and retired municipal workers in Los Angeles. As of early 2025, the fund manages more than $22 billion in assets across a diverse range of investment categories, including public equities, fixed income, hedge funds, and real estate.
The fund regularly reviews and adjusts its strategies to ensure long-term growth and payout stability, especially amid fluctuating economic conditions.
A New Direction: Opportunistic Real Estate
In 2025, LACERS introduced an updated investment policy that significantly expands its exposure to opportunistic real estate. This means the fund is willing to invest in higher-risk properties that may offer enhanced returns—both domestically and internationally.
Unlike traditional core assets (such as fully leased office or residential buildings in stable markets), opportunistic investments involve:
- Acquiring distressed or undervalued properties with potential for value creation
- Investing in underperforming or vacant buildings for redevelopment
- Funding new construction with expected high margins
- Entering transitional or emerging markets with long-term upside
The Goal: Enhanced Portfolio Returns
According to LACERS’ investment officers, the primary objective is to increase the average real estate portfolio return from the current 6.2% to a target range of 8–10% over the next five years. This move is especially timely given the ongoing inflationary pressures and reduced yields from traditional asset classes.
As of early 2025, LACERS’ real estate allocation is structured as follows:
- 45% in core assets (low risk, stabilized returns)
- 30% in value-added assets (moderate risk, repositioning or renovations)
- 25% in opportunistic assets (target to grow to 35–40% under the new strategy)
This shift marks a deliberate move toward a more aggressive investment posture in pursuit of alpha.
Why Now?
LACERS’ timing aligns with several macroeconomic and market-specific factors:
- Decline in commercial property valuations in major U.S. and European cities, creating buying opportunities.
- Rising availability of distressed assets due to post-pandemic disruptions and higher interest rates.
- Surge in redevelopment potential, especially in converting office buildings to residential or mixed-use spaces.
- Emergence of high-growth sectors, such as logistics, e-commerce warehousing, and data infrastructure.
With these dynamics in play, LACERS aims to capitalize on a cyclical market downturn by acquiring assets below their long-term value.
Investment Targets and Project Types
Initial and planned investments include:
- Redeveloping suburban malls into mixed-use housing and retail hubs
- Participating in multifamily residential construction in Los Angeles and San Diego
- Investing in logistics centers near major ports like Long Beach and Oakland
- Exploring international opportunities in Latin America and Eastern Europe, particularly in industrial and hospitality sectors
These projects will likely be executed in partnership with prominent global firms such as Brookfield, LaSalle Investment Management, and CBRE Global Investors.
Risk Management Framework
Despite its more aggressive approach, LACERS emphasizes a disciplined risk management policy. All potential investments are vetted against criteria such as:
- Projected cash flows and internal rate of return (IRR)
- Track record and financial health of developers and partners
- ESG compliance and long-term sustainability factors
- Liquidity potential within a 5–7 year time horizon
The fund also employs diversification and insurance mechanisms to avoid overexposure to any single geography or asset type.
Market Position and Expert Opinions
LACERS’ pivot to opportunistic real estate has drawn mixed reactions from analysts. Some view the strategy as a logical response to lower yields across traditional investment classes. Others caution about potential overheating in select sectors—especially multifamily development in parts of California.
Nevertheless, many experts agree that institutional investors like LACERS are well-positioned to take advantage of unique opportunities not accessible to private investors, particularly in off-market or complex transactions.
Long-Term Outlook
If successful, LACERS expects the strategy to deliver several key outcomes:
- Raise overall real estate portfolio returns to above 9%
- Increase total real estate allocation to 12–14% of the fund’s total assets
- Improve retirement security for beneficiaries through stronger funding ratios
- Serve as a model for other U.S. public pension systems considering more dynamic strategies
In addition, investments in redevelopment and resilient infrastructure align with the fund’s broader commitment to ESG integration and community impact.
Conclusion
LACERS is positioning itself for long-term success by embracing opportunistic real estate as a tool for yield enhancement and portfolio diversification. While the strategy entails greater complexity and risk, it also offers the potential for outsized returns and transformational development impact. If executed with prudence, it could secure stronger financial outcomes for thousands of public workers while contributing to the urban future of Los Angeles and beyond.
