The California Public Employees’ Retirement System’s real estate portfolio just missed its 2017-18 benchmark for the 12 months ending June 30, PERE’s sister publication, Infrastructure Investor, reported Thursday.
The asset class returned 6.8 percent, 26 basis points under its benchmark, the US core fund index MSCI Investment Property Databank, which CalPERS changed from the National Council of Real Estate Investment Fiduciaries’ Open-End Diversified Core Equity in April of last year.
The $351 billion pension fund’s overall portfolio returned 8.6 percent for the 2017-18 fiscal year, 6 basis points below its benchmark. In a video, CalPERS chief investment officer Ted Eliopoulos credited “strong performances” from infrastructure, real estate and public and private equities, despite the overall portfolio’s slight underperformance.
“While we’ve seen some expected volatility in the markets, our diversified global portfolio has allowed us to exceed our expected rate of return of 7 percent,” Eliopoulos said in the video. “While we’re pleased with the returns, we’re always focused on the long-term, bigger picture.”
Real estate was the fifth-highest performer of CalPERS’ nine asset classes and was one of four asset classes that underperformed its benchmark, along with private equity, forestland and public equity.
Infrastructure, which returned 20.6 percent in the fiscal year, led CalPERS’ investments, while the $26.96 billion private equity portfolio generated a 16.1 percent return. Though private equity retuned 250 basis points below its index, it marked the second-highest return of all asset classes. Public equity, CalPERS’ largest portfolio at $172.53 billion, produced the third-highest return at 11.5 percent – 42 basis points under its benchmark.
Infrastructure, together with real estate and forestland, made up CalPERS’ $36.7 billion real assets portfolio as of April 30. Overall, the real assets portfolio returned 8 percent, 119 basis points above its benchmark. Forestland returned 1.9 percent, 187 basis points below its index.
CalPERS noted that real estate returns, as well as private equity, are based on market values as of March 31.
CalPERS’ overall return for the 2016-17 fiscal year was 11.2 percent, 15 basis points under its benchmark, PERE previously reported. The total portfolio at the time held $323 billion in assets.
Last year, real estate, forestland and real assets had 7.6 percent, 1 percent and 8 percent returns, respectively, with property outperforming its benchmark by 24 basis points. CalPERS created the larger real assets portfolio in April 2017 because the three strategies share similar investment characteristics.
The pension’s five, 10 and 20-year investment returns are now 8.1 percent, 5.6 percent and 6.1 percent, respectively. “That’s our focus,” instead of emphasizing an individual year’s returns, Eliopoulos said.
He added that CalPERS’ funded status has increased from 68 percent to 71 percent over the last fiscal year.
Eliopoulos, who joined CalPERS in 2007, announced in May that he will leave the pension fund next year. He said in a statement that he will stay on as CIO until CalPERS finds his replacement and will assist with the transition.
– With additional reporting by Jordan Stutts