Canyon set to take over $193m CalPERS’ portfolio

The Los Angeles-based firm is in final negotiations to take over the value-added CalSmart fund previously managed by RREEF after the partnership suffered heavy losses during the past three years.

Canyon Capital Realty Advisors is in final negotiations with the US’ largest public pension plan to take over the running of a $193 million portfolio of office, industrial and apartment properties from RREEF.

The California Public Employees Retirement Systems revealed it was planning to transfer the CalSmart portfolio to Canyon in a news release on Friday. The release was later withdrawn but a spokesman told PERE the deal was in the process of being finalised. Canyon was unavailable for comment at press time. RREEF declined to comment.

The CalSmart partnership was established by CalPERS and RREEF, the real estate investment arm of Deutsche Bank, in March 2001 targeting urban value-added properties in California, as well as Illinois and Florida. However, over the past three years the fund has suffered large losses leaving it with a net asset value of $192.9 million, the latest performance data from CalPERS shows. In the 12 months to the end of September 2010, CalSmart reported -62.1 percent net IRRs and -38.1 percent IRRs for the three years to the same period. The portfolio reported a 1 percent gain in the third quarter of 2010, up from -5.1 percent IRRs in the second quarter, with a net IRR since inception of -4.3 percent.

The $230.6 billion public pension plan has been actively reassessing managers across its alternative asset classes and in January shifted control of its largest core office portfolio, the $724 million National Office Partners partnership, away from Hines and into the hands of Los Angeles-based CommonWealth Partners.

In December, CalPERS also transferred the European assets of its CalEast Global Logistics pool to RREEF and away from LaSalle Investment Management, while in October it consolidated roughly $1.1 billion of apartment investments into the hands of GID Investment Advisers, an affiliate of The General Investment & Development Companies, and away from BlackRock Realty Advisors.

CalPERS is in the process of dramatically scaling back its exposure to opportunistic real estate investments, with private core assets expected to account for up to three-quarters of its property portfolio in the future. The pension said in February it planned to split its real estate portfolio between legacy and new investments, with the new portfolio comprised of at least 75 percent core US assets, likely through five to 10 separate account managers and with a hold time of between 10 and 20 years.

CalPERS also will target a 15 percent allocation to US tactical deals, including core, value-added and opportunistic strategies, again with five to 10 managers and possibly including an emerging manager programme. The pension said it would then carve out a target 10 percent allocation to international value-added and opportunistic investing with between five to 10 managers.