GPIF taps Blackstone for first direct real estate fund commitment

The world's largest pension fund previously invested in three fund of funds managers focused on the sector.

Japan’s Government Pension Investment Fund has made its first direct commitment to a private equity real estate fund by investing in Blackstone’s latest flagship real estate fund.

GPIF, the world’s largest pension fund, committed $500 million to Blackstone Real Estate Partners X, according to its annual report for the fiscal year ended March 31. The investor did not provide a reason for its commitment decision in the report. Blackstone closed on $30.4 billion for BREP X in April.

GPIF’s commitment to Blackstone is a milestone in its evolution as an institutional investor looking to diversify its portfolio. Before investing in BREP X, the organization had only invested in private real estate through its “multi-manager strategy” since 2017.

The world’s largest pension fund is also an investor in three fund of funds managers for real estate: Mitsubishi UFJ Trust Bank, CBRE Investment Management and LaSalle Investment Management. Overall, GPIF’s real estate AUM has grown to JP¥919 billion ($6.5 billion; €5.9 billion), representing an 18 percent increase from last year due to “investment progress” and “exchange rate fluctuation.”

In terms of portfolio construction, the investor has allocated 45 percent of its real estate portfolio in the US, followed by 25 percent in Japan, 8 percent in the UK and 7 percent in Australia. While logistics and offices remain the pension’s two largest sector exposures, which together make up 72 percent of the investor’s portfolio, GPIF has continued to reduce its exposure to office from 32 percent last year to 28 percent this year.

As of March 2023, its domestic real estate investment and overseas real estate investment has generated IRRs of 7.29 percent denominated in yen since 2017 and 6.22 percent in US dollars since 2018, respectively.

At the same time, the pension fund’s commitment to BREP X has reflected large investors’ interest in backing the biggest managers’ flagship funds. Blackstone broke its own private real estate fundraising record this year with BREP X. Together with its other real estate strategies, the US firm has raised a total of $72 billion in capital commitments over the past five years, according to this year’s PERE 100 ranking.

Steven Cowins, a fund formation specialist and co-chair of law firm Greenberg Traurig’s real estate funds group, told PERE in a separate interview for PERE 100 that industry heavyweights Blackstone and Brookfield are private real estate’s biggest fundraisers partly because they have become a proxy for the asset class.

“Blackstone and Brookfield would see themselves as alpha in terms of returns,” Cowins said. “But how much are they seen as beta by the capital? You have to invest, if you can, with Blackstone and Brookfield. That’s the market beta now.”