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CalPERS’ real estate could grow to $36bn

The country’s largest public pension is considering increasing its interests in real estate with an eye toward the burgeoning emerging market countries.

The California Public Employees’ Retirement System, the country’s largest public pension with close to $248 billion (€183 billion) in assets, may increase its real estate investments to $36 billion over the next five years.

At an investment committee meeting held yesterday, consultant PCA Real Estate Advisors recommended actively stepping up property investments. If the pension fund increased allocation to real estate to 10 percent, it could be looking at a $36-billion portfolio over the next five years, assuming an 8 percent annual growth rate.

CalPERS currently has approximately $20 billion in real estate, about 8 percent of its total assets.

The plan includes a shift toward higher risk and higher yielding value-added and opportunistic investments. The new benchmarks also call for increasing the number of investment professionals and opening offices in Europe and Asia to better cover local markets. A target of 50 percent would also be earmarked for international investments—with a focus on emerging markets such as China, India and Latin America.

CalPERS already has property investments in emerging market countries. In June, it partnered with investment management firm Pacific Corporate Group on a $400-million fund targeting India, China, Japan, Central Europe, Latin America and Africa. A significant portion of the fund is directed toward real estate.

Also in June, the pension fund joined with international real estate firm Hines to acquire the 29-story BankBoston building in São Paulo through the Hines Calpers Brazil II fund. The fund was established by the firms to invest primarily in Brazil’s office, industrial and residential markets, with the option of extending its reach to Argentina and Chile.

CalPERS’ investment committee is expected to approve the new plan this month and changes are expected to take effect in July 2008.