CalPERS looks to Commonwealth to run core office portfolio

Hines has lost control of the $724m National Office Partners account it ran for CalPERS, with LA-based CommonWealth Partners picking up the mandate. In December, LaSalle lost the $2bn CalEast industrial portfolio to GI, RREEF.

The California Public Employees Retirement System has shifted control of its largest core office portfolios into the hands of Los Angeles-based CommonWealth Partners.

The $214.6 billion pension fund today said it had transferred the $724 million National Office Partners portfolio away from Hines to CommonWealth as part of the “strategic realignment of its real estate programme”. CalPERS has been actively culling poorly performing managers from its alternative asset classes in recent years.

Hines had managed the NOP pool of offices, which compromises 5.2-million-square-feet of Class A office space across the US, including properties in Boston, Chicago, Seattle, San Francisco, Palo Alto, Minneapolis, Salt Lake City, Austin and Denver, since July 1998 in what was one of the pension’s longest running core mandates. Including debt, the portfolio is valued at $998 million, a CalPERS spokesman confirmed.

However, according to the latest performance figures from CalPERS, the portfolio made significant losses in the year to the end of June 2010, returning -52.8 percent. Over the past three and five years, the NOP portfolio returned -33.1 percent and -15.7 percent, respectively. In the quarter to the end of June last year, NOP made 2.1 percent returns with returns since inception of just 2.8 percent.


CalPERS’ senior investment officer Ted Eliopoulos said in a statement today the pension would concentrate on global opportunities with Hines instead. “We’re also excited about the opportunities we’re pursuing with Hines on a global basis.”

In September, CalPERS committed $190 million to a Hines separate account targeting Brazil real estate. The investment was the third such mandate for the Houston-based fund manager, with the public pension having committed $95 million to the Hines CalPERS Brazil Fund I in August 2005 and $285 million to the follow-on fund in 2007. Those investments are currently valued at $142.4 million and $147 million, respectively, CalPERS’ chief investment officer Joe Dear said last September.

CommonWealth took over management of NOP at the end of 2010, with Eliopoulos adding in the statement issued today: “[They have] done extremely well for us for over 12 years now, and we anticipate very good performance from them and the domestic office portfolio going forward.” CommonWealth has closed more than $4 billion of transactions with CalPERS since 1998, the pension added.

In December, GI Partners took over running the North American assets of CalPERS’ CalEast Global Logistics pool, valued at $1.9 billion, after the pension terminated its relationship with LaSalle Investment Management. The portfolio’s European assets, currently valued at $60 million, were moved over to RREEF, the property arm of Deutsche Bank.

CalPERS set up the industrial account with LaSalle in April 1998, but in the three months to the end of June 2010, the entire CalEast portfolio returned -3 percent, compared to 3.5 percent in the 12 months to the end of June.  Three and five year performance returns were also negative at -25.9 percent and -11.8 percent, respectively. Since inception, CalEast has delivered a 4 percent return for the pension.

The pension also consolidated its entire core multifamily portfolio under a single manager in October, transferring its roughly $1.1 billion of apartment investments into the hands of GID Investment Advisers, an affiliate of The General Investment & Development Companies, away from BlackRock Realty Advisors.

The California pension’s $7.1 billion core real estate portfolio represents 46.9 percent of CalPERS’ investments in the real estate asset class, with the remainder in opportunistic fund interests.