CalPERS increases RE commitments after two years of cutbacks

The California Public Employees’ Retirement System has committed more than $4.2 billion to real estate investments for fiscal year 2018-19, according to documents from the pension plan’s investment committee meeting next week.

That decision represents an uptick in commitments to the asset class after two years of reducing its real estate capital allocation. An additional $1.4 billion is expected to be put towards maintenance of existing assets, according to Pension Consulting Alliance, CalPERS’ consultant.  Fiscal year 2016-17 real estate commitments of $4.6 billion dropped from the $5 billion allocated in 2015-16. Real estate commitments fell again in 2017-18 to $3.95 billion.

PCA estimated CalPERS would allocate approximately $4.8 billion to real estate in an August memorandum, PERE previously reported. The $4.8 billion figure should have referred to all real asset investments, which include infrastructure and forestlands, according to PCA.

Out of the $4.2 billion committed to new real estate investments thus far, approximately 25 percent was awarded to Institutional Multifamily Partners, a venture CalPERS had formed with New-York based GID in 2010. The venture will put the $1.16 billion allotted toward its strategy of acquiring multifamily properties across the eastern US.

The pension system allotted $1.13 billion for Fifth Street Properties, a US office-focused partnership formed with CommonWealth Partners. The commitment was a slight decrease from the $1.25 billion committed the year prior.

A sizable chunk of capital was committed to CalEast Global Logistics, a joint venture between CalPERS and San Francisco-based GI Partners. CalEast Global Logistics will have $620 million to put towards acquiring and operating industrial, logistics and infrastructure-related properties across the US and Canada. Investments have included warehouses, light assembly, distribution centers and truck terminals.

The California pension system managed $31.79 billion in real estate as of June 30, 2018, according to pension fund documents. The figure represents a 4.1 percent increase from the same time last year when the system reported a net asset value of $30.5 billion. In comparison, CalPERS managed $4.3 billion in infrastructure and almost $2 billion in forestland as of June 30, 2018. The three asset classes comprised the $38.1 billion managed in real assets during the same period.

Real estate investments reported a 6.8 percent net return over the last fiscal year, missing that division’s benchmark, the US core fund index MSCI Investment Property Databank, by 26 basis points, PERE previously reported. In contrast, the real assets division, which includes real estate investments along with infrastructure and forestland, returned 8 percent over the last year.