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CalPERS to allocate $2bn to mid-size RE firms

The country’s largest pubic pension system established a transition manager program for firms in between its emerging manager platform and its pool of larger established managers.

The California Public Employees’ Retirement System (CalPERS) intends to allocate $2 billion to five mid-size real estate managers through its transition manager program by 2020, the pension system said Thursday.

CalPERS plans to allocate $7 billion across asset classes to firms that are not large and experienced enough to compete against more established firms for direct investment mandates. Within real estate, the country’s largest public pension system will make commitments ranging from $50 million to $300 million, according to materials from the pension’s June meeting. CalPERS announced the formation of the program in June 2015.

Submissions for the transition manager program will be accepted beginning July 2017. Real estate investment managers must have a track record of four to six separate accounts or institutional funds, and there are no parameters for assets under management or geographic focus. The firm defines transition managers as “firms that have demonstrated early stage success, either within CalPERS’ Emerging Manager Program or elsewhere.” The selection process could take up to a year, according to meeting materials.

“Our objective for investing with emerging and transition managers is to generate appropriate risk-adjusted investment returns by identifying early funds with strong potential for success; accessing unique investment opportunities that may otherwise be overlooked; and cultivating the next generation of external portfolio management talent,” said Laurie Weir, CalPERS’ investment director for targeted investment programs, in a statement Thursday.

Both the emerging and transition manager programs seek to provide pathways for managers to grow and eventually compete with CalPERS’ pool of larger, established managers. The pension system said last year that it would reduce that pool of existing manager relationships across asset classes as it seeks to reduce the risk, cost and complexity of its portfolio. Within real estate, CalPERS plans to cut the number of external managers from 85 to 15 over the next five to 15 years. Firms in the transition manager and emerging manager programs do not count toward this reduction.

Separately, CalPERS plans to commit up to $4 billion through its emerging manager program by 2020, including $500 million to real estate, according to a report from its board meeting last week. Across asset classes, the pension system currently has $9.4 billion invested with 301 emerging managers and within real estate, it has $700 million invested with 19 emerging managers. Canyon Capital Realty Advisors oversees the real estate emerging manager program, which includes mentoring oversight from CalPERS.

The $294 billion pension system has $26 billion invested with existing real estate managers, according to the June meeting materials.