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CalPERS earmarks $4.7bn to RE

The US’s largest public pension made a smaller commitment to the asset class than last year, when it allocated $6.3bn for the 2015-16 fiscal year.

The California Public Employees’ Retirement System said it will invest about $4.7 billion in 16 funds and joint ventures during its new fiscal year beginning July, according to board meeting documents.

The US’s largest public pension, which managed $27.3 billion in real estate out of a $303.3 billion portfolio as of the end of the second quarter, disclosed the investments ahead of board meetings next week.

The largest real estate earmark is a $1 billion check to Fifth Street Properties, an office-focused joint venture managed by CommonWealth Partners. Fifth Street Properties was valued at $1.6 billion and returned 19.2 percent net over the three years ending March 31, according to the pension system’s first-quarter performance report. CalPERS’ overall real estate holdings had an 11.5 percent net internal rate of return over three years.

CommonWealth also is the real estate manager for National Office Partners, an office-focused joint venture with CalPERS that is due to receive an additional $39 million. National Office Partners was valued at $1.2 billion and had a five-year IRR of 26.4 percent as of March 31. CommonWealth’s last publicly disclosed transaction with CalPERS was the July sale of Wellesley Gateway, a four-story office building in Massachusetts, for $87.5 million, according to real estate data provider Real Capital Analytics (RCA).

CalPERS also allocated $750 million to Institutional Multifamily Partners, a platform valued at $1.1 billion with a 17.1 net IRR over three years, as of March 31. The JV, formed in 2010 with real estate investment firm GID, targets multifamily acquisition and development opportunities throughout the US. The partnership most recently entered into contract this month to buy The Victor, a 286-unit apartment in Boston, for $190 million, according to RCA.

The pension fund is looking outside of the US for opportunities, too, investing $500 million with ARA China Investment Partners. That platform, one of CalPERS’ few foreign-focused partnerships, was valued at $809 million and had a 6.9 percent net IRR for the three years ending March 31. CalPERS established the core-plus fund through Singapore-based ARA Asset Management in 2012 to invest in prime income-producing office and retail properties in major Chinese cities, according to ARA’s website.

Another major recipient of this year’s allocations will be Bentall Kennedy’s Institutional Logistics Partners (ILP), formed in March 2013 with a $250 million commitment and now getting an additional $400 million. Valued at the end of the first quarter at $411 million, ILP has generated a 13.6 percent net IRR for the three years ending March 31. The JV focuses on Class A industrial properties in targeted US markets that generate stable, predictable cash flows and long-term returns and in the past year, PERE understands that the ILP executed six deals with an aggregate purchase price of more than $200 million.

The pension plan is also anticipating to pledge $320 million to Pacific Multifamily Investors, a partnership with Pacific Urban Residential valued at $584 million with a one-year net IRR of 10.6 percent as of March 31. Established in January 2014 with a $200 million investment, the JV invests in Class B multifamily properties in the western US’s major markets.

The pension plan’s aggregate real estate allocations for fiscal year 2016-17 represent one of its largest annual allocations to the asset class. The planned commitments did, however, fall short of CalPERS’ allocation to the asset class in its last fiscal year, which totaled $6.3 billion, PERE previously reported.