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CalPERS mulls updates to real assets strategy

After combining infrastructure, real estate and forestland into a singular real assets unit in 2011, CalPERS looks to further consolidate its strategy.

In its latest proposed five-year plan, the California Public Employees' Retirement System  (CalPERS) is looking to further unify its infrastructure, real estate and forestland programs as part of its broader real assets strategy, PERE's sister publication, Infrastructure Investor, reported Wednesday.

The country's biggest pension plan is also looking for a new real estate consultant, with plans to award a five-year contract to the winner of its ongoing search process. CalPERS' board will hear presentations from the two finalists, Courtland Partners and its current manager, the Pension Consulting Alliance (PCA), at its May board meeting, according to materials for its Monday meeting.

CalPERS, which currently holds approximately $290 billion in assets under management as of April 11, first adopted a real assets approach in 2011 as part of its current five-year plan, which includes infrastructure, real estate and forestland. Real estate made up $25.7 billion of the portfolio as of September 30, according to the pension's meeting materials.

Organizationally, the updated plan creates a new integrated structure comprising five divisions, which are strategic planning, new investments, PARRGO (portfolio, analytics, research, risk, governance and operations), a portfolio management group and investment research. Risk classification would be unified, with investments falling into the three buckets of core, value-add and opportunistic categories.

Within real estate, CalPERS' exposure to US assets would slightly increase from a floor of 63.75 percent of its portfolio to 75 percent in an effort to reduce risk, according to materials for Monday's meeting. CalPERS also plans to limit build-to-core investments to 10 percent of the portfolio, a ceiling it does not currently use. In further modifications, the pension plan plans to establish a 15-manager limit for real estate managers, part of the pension system's overall strategy to reduce risk, cost and complexity. 

“Importantly, the proposed changes in the update do not introduce meaningful new investment themes or risks and keep the focus of staff's resources on the areas of greatest impact,” PCA wrote in a letter for Monday's meeting. “These changes will further support the real estate portfolio in its efforts to meet the role of real estate in current and anticipated market conditions.”

The CalPERS investment committee is set to review the staff-recommended changes to its real assets strategy at its next meeting on Monday. According to the meeting agenda, managing investment director Paul Mouchakkaa will be joined by Wilshire Associates Consulting president Andrew Junkin; Pension Consulting Alliance managing directors Christy Fields and David Glickman; and StepStone co-head of infrastructure and real assets David Altshuler.