CalPERS and Hines make big money from Brazil

A partnership between the $240bn pension system and the global real estate asset manager has generated a 60% IRR and $160m in profits. The fund closed after selling its office, residential and logistics projects in São Paulo, Rio de Janeiro and Curitiba.

The Hines CalPERS Brazil Fund I, a Brazilian real estate development fund, has been a big winner for the pension and the real estate management firm, generating $160 million in profits for the partnership. The fund is fully monetised.

The fund was formed in 2005 by the California Public Employees' Retirement System (CalPERS) and Hines and capitalised with $100 million of equity, which was invested in a total of $270 million of real estate assets over a six-year investment period.

According to announcements from Hines and the $240 billion pension system, the fund has generated a $160 million profit after it developed, operated and sold nine projects in São Paulo, Rio de Janeiro, Curitiba and secondary cities in the State of São Paulo. Of the nine projects, two of them were office properties, three were residential and four were logistics projects.

The fund, which had an initial target of 20 percent internal rate of return, ultimately generated a 60 percent IRR. CalPERS invested $95 million in the vehicle. 

In a statement, CalPERS chief investment officer Joseph Dear said that the profit affirms the pension fund's “new strategy to deploy up to 15 percent of [its] real estate capital to growth markets like Brazil and China”. 

Meanwhile, Hines vice president and fund manager Steve Dolman attributed the profitability of the fund to “a timely development execution in real estate product types that attracted commercial tenants and residential buyers who benefitted from Brazil's internal economic growth”.

Hines, which controls $23.7 billion in assets, has operated in Brazil for 13 years. The company also invests for CalPERS in a second Hines CalPERS Brazil Fund and in other global markets, including China.

“Brazil is Latin America's largest economy with increasing earnings, a growing middle class and favourable demand for the development of shopping centres, warehouses, offices and residential units,” said Ted Eliopoulos, senior investment officer for the CalPERS’ real estate programme.

CalPERS and Hines have subsequently invested twice in the Hines CalPERS Brazil Fund II, the first of which was in 2007 and the second in 2010, totalling $500 million of equity commitments. Fund II has funded 20 subsequent projects.