CalPERS to commit up to $2.5bn to RE emerging managers

The bulk of the capital will be going toward establishing a new program to help real estate emerging managers transition to larger direct relationships.

The California Public Employees’ Retirement System expects to deploy $2.5 billion in capital to real estate over the next five years. A key part of the allocation will be used to help emerging managers transition to larger direct relationships with the $302.6 billion pension plan.

CalPERS has earmarked capital commitments of up to $500 million in the real estate emerging manager program, and up to $2 billion to a transition manager program, according to a presentation to be made at CalPERS’ board meeting next Monday and published in advance on the investor’s website. 

As defined by CalPERS, the emerging manager program applies to firms that are on their first, second or third separate account and have assets under management (AUM) of no more than $1 billion. The program, which is overseen by Canyon Capital Realty Advisors via its Canyon Catalyst Fund, includes up to six managers that receive allocations between $50 million and $100 million and mentoring oversight from CalPERS. 

Meanwhile, the emerging manager transition program, which also will be established in private equity and global equity, includes managers on their fourth through sixth separate account . The program will encompass up to 15 managers that will receive $200 million to $500 million allocations and have a direct relationship with CalPERS. Beginning in July, real estate staff will begin reviewing potential candidates for the program, including existing firms in the emerging manager program as well as qualifying managers with which the pension plan currently does not have a relationship.

In its presentation, CalPERS noted that although some firms have grown beyond the parameters of its emerging manager program, they still were not large and experienced enough to compete against more established firms for direct investment mandates. Established managers, after all, receive at least $500 million in commitments and have discretion with staff oversight over investments. “The Emerging Manager Transition Program will ‘fill the gap’ between emerging managers and large established managers,” the pension plan said.

CalPERS has been restructuring its external manager relationships as it seeks to reduce the risk, cost and complexity of its portfolio. “As a result of this restructuring, we will have fewer, more strategic relationships, improved manager selection and oversight and reduced costs while generating returns for the portfolio,” the pension plan said. One component of the restructuring will be launching the transition program.

Indeed, CalPERS’ real estate program currently includes approximately 85 established external managers, but that number is expected to be slashed to approximately 15 over the next five to 15 years. The pension plan presently manages $26 billion in real estate assets.