CalPERS ‘casts a wide net’ in search for RE transition manager

The $351bn pension is seeking one or two office-focused managers for two US cities, the head of investment manager engagement programs told PERE.

Clinton Stevenson: director for investment manager engagement programs

The California Public Employees’ Retirement System is seeking its first real estate transition manager for a cross-asset program started three years ago.

The $351 billion pension opened a solicitation process on Wednesday to find one – or potentially two – mid-size real estate investment managers, Clinton Stevenson, the director of CalPERS’ investment manager engagement programs, told PERE.

CalPERS is seeking a manager to oversee $200 million-$400 million in office investments in New York City and San Francisco. For this particular mandate, CalPERS is looking for a firm with at least $250 million in net asset value in office properties; headquarters or offices in New York and/or the Bay Area; and five years’ experience both managing office assets and working with institutional investors.

“One of the things we’re doing across the portfolio, with real estate and the other asset classes, is cast a wide net to make sure we’re looking at the very best talent we can,” Stevenson said. “That’s the purpose of this transition and emerging program: as long as [managers] meet our minimum qualifications, we’ll look at them.”

CalPERS is seeking a manager with “best-in-class” expertise in the property type and alignment of interests, Stevenson said.

Paul Mouchakkaa, CalPERS’ head of real assets, decided on this mandate based on portfolio needs and scalability, Stevenson added.

“I suspect there will be quite a few” applicants, he said, noting that CalPERS would evaluate both office-focused and diversified managers with experience in the property type and geographies.

The pension system will take written questions until August 15 and will respond to questions by August 24. Firms can file applications through September 7, and CalPERS will evaluate the proposals in September and October. If two firms are selected, CalPERS could split the capital between them or reevaluate its capital commitment as needed, Stevenson said.

Mouchakkaa will lead the review process, which also will involve the pension’s internal real estate investment committee.  

CalPERS announced its transition manager program three years ago with plans to allocate $7 billion by 2020 across asset classes. The program will target managers that are not large and experienced enough to compete against more established firms for direct investment mandates. The pension has now hired three transition managers for private equity and one for global equity after opening a solicitation for firms in those asset classes last July, Stevenson said.

In June 2016, CalPERS said it would allocate up to $2 billion to five real estate managers by 2020, PERE previously reported. The firm defines transition managers as “firms that have demonstrated early stage success, either within CalPERS’ Emerging Manager Program or elsewhere.”

For real estate, there are few parameters for potential transition managers: no floor or ceiling for assets under management, no specified geographic focus, no product size. Firms must be managing commingled funds and/or separate accounts and must be running their fourth, fifth or sixth separate account or institutional fund.

CalPERS intends for firms in both its emerging and transition manager programs to grow and eventually compete with CalPERS’ pool of larger, established managers. The pension system said in 2015 that it would reduce its pool of existing manager relationships across asset classes as it seeks to reduce the risk, cost and complexity of its portfolio. Within real estate, CalPERS plans to cut the number of external managers from 85 to 15 by 2030. Firms in the transition manager and emerging manager programs do not count toward this reduction.

CalPERS’ $30.5 billion real estate portfolio returned 6.8 percent, 26 basis points under its benchmark, the US core fund index MSCI Investment Property Databank, in the year ending June 30, PERE previously reported.

The $351 billion pension fund’s overall portfolio returned 8.6 percent for the 2017-18 fiscal year, 6 basis points below its benchmark.