CalSTRS commits $1.2bn to firms including Fortress, PCCP

The $152.1 billion pension system has closed on five follow-on real estate investments including commitments to opportunistic funds of Fortress and PCCP.

The California State Teachers’ Retirement System (CalSTRS) agreed to invest $1.17 billion with five of its long-serving real estate managers during the three months to the end of June, according to the pension plan’s most recent quarterly investment report.

More than 20 percent of the capital was committed to opportunistic debt strategies, including $200 million to Fortress Investment Group’s FCO MA III, a $420 million fund that will invest in opportunistic credit-related investments, and $50 million to PCCP’s PCCP Equity VI, a $500 million investment vehicle targeting purchases of distressed debt and assets, with the goal of acquiring the underlying properties and repositioning them to stabilisation. CalSTRS previously invested in 13 other Fortress real estate funds, including Fortress Credit Opportunities Fund II, and one other PCCP fund, PCCP Mezzanine Recovery Partners I, according to its website.

Those two fund commitments contributed to the growth in CalSTR’s opportunistic real estate portfolio, which rose from nearly $9 billion to $9.8 billion during its most recent fiscal year, which ended on 30 June.

Despite this increase in opportunistic holdings, however, CalSTRS has said it is focusing more heavily on core real estate, with a long-term goal of allocating half of its real estate portfolio to core investments.

Indeed, more than half of the capital, or $918.4 million, that CalSTRS committed during the previous quarter went to three core investments, the largest of which was a $468.4 million investment in a previously announced joint venture with LCOR, a Pennsylvania-based real estate development firm in which CalSTRS acquired a majority stake in May. The partnership plans to operate existing multifamily assets as well as pursue opportunities to develop and acquire core assets along the Washington DC and New York City corridor.

The joint venture with LCOR was considered a follow-on investment because of the pension plan’s relationship with GI Partners, a Menlo Park-based private equity firm whose affiliates co-invested in the acquisition, and which will act as the asset manager for CalSTRS' interests in the venture. CalSTRS was a limited partner in GI Partners Fund I and II.

The pension plan also agreed to invest an additional $200 million in an existing joint venture with CenterCal Properties, which pursues build-to-core investments and acquisitions in retail properties on the West Coast. Additionally, the pension system committed $250 million to a core investment vehicle managed by GI Partners called DataCore, which will invest in technology-focused real estate in the US. The largest US pension fund, CalPERS, also had formed a $500 million separate account with GI Partners to pursue a similar strategy during the second quarter.

As of 30 June, the pension system held $21.8 billion in real estate assets, or 14.46 percent of its total portfolio. Within its real estate portfolio, 35 percent was invested in core, 18 percent in value-add, 45.2 percent in opportunistic and 1.8 percent in public.