CalPERS commits $700m to RE funds

Confronting an increasingly overweighted private equity portfolio, CalPERS has made $700m in commitments to real estate funds and almost $1bn to four private equity funds.

The California Public Employees’ Retirement System has disclosed $1.6 billion (€1.13 billion) in fresh real estate and private equity commitments. 

Investment staff at the $234.2 billion pension have recommended allocating $500 million to JER Partners' Latin America Fund I and and $200 million to GI Partners' latest buyout fund, which also invests in real estate, GI Partners fund III. The opportunistic funds have net expected returns of more than 20 percent, according to the pension.

JER has been rapidly increasing its presence in Latin America this summer, appointing former MIRA Companies executive Ariel Amavizca as head of risk management, as well Roberto Perroni and Sergio Hernandez to lead the firm's offices in Sao Paulo and Mexico respectively. Perroni was formerly superintendent director of Brazilian development and investment firm, Camargo Corrêa Desenvolvimento Imobiliário. Hernandez was previously national sales director of GE Capital Solutions Mexico, developing GE’s commercial finance platform in the country.

CalPERS has been a repeat investor with GI Partners, committing $500 million, or 95%, of the capital raised for the California- and UK-based firm's first fund. GI Partners fund II garnered $1.45 billion in commitments, closing in 2006. Last August, GI Partners made its first foray into the wine business, with a controlling investment in Duckhorn Wine Company. The company’s labels included Duckhorn, Paraduxx, Goldeneye, Decoy and Migration.

CalPERS also committed fresh capital to four private equity funds including $300 million each to Carlyle Asia Partners III and Riverstone/Carlyle Renewable & Alternative Energy Fund II, as well as $221 million to Avenue Europe Special Situations, the first Europe-focused fund raised by New York-based distressed debt specialist Avenue Capital Partners, and $100 million to The Blackstone Group-affiliated GSO Capital Opportunities fund.

The commitments come as CalPERS considers a five-fold expansion of its investments in emerging market real estate. As part of a strategic review of the real estate asset class over the next five to 10 years, the pension will  consider investing up to 20 percent of the fund’s real estate pot, valued at $23.6 billion, towards emerging markets – with China and India among the favored countries.

Emerging market investments currently account for only 3.6 percent of total real estate allocations, compared with 83.8 percent for developed North America, 6.8 percent for developed Europe and 5.7 percent for developed Asia.

A report by Pension Consulting Alliance and PCA Real Estate Advisors said China and India were “highly attractive” locations in which to invest. The report added that Brazil, Mexico and Turkey were “attractive” areas to invest in, but it was “neutral” on countries such as Russia, South Africa, Poland and Hungary. Argentina was the least attractive country for investment.