GI Partners has taken over the management of a $1.9 billion core portfolio of industrial assets after the California Public Employees Retirement System terminated its relationship with LaSalle Investment Management.
The $214.6 billion pension fund said it had transferred the North American assets in its CalEast Global Logistics pool to GI, while the portfolio’s European assets, currently valued at $60 million, had been moved over to RREEF, the property arm of Deutsche Bank.
CalPERS set up the industrial account – which currently owns and operates more than 47 million-square-feet of space – with LaSalle in April 1998, however the account’s performance has been poor over the past few years.
In the three months to the end of June 2010, the entire CalEast portfolio returned -3 percent, compared to 3.5 percent in the 12 months to the end of June, according to the latest CalPERS quarterly performance report. Three and five year performance returns were also negative at -25.9 percent and -11.8 percent, respectively. Since inception, CalEast has delivered a 4 percent return for the pension. LaSalle declined to comment.
But, representing 27.1 percent of CalPERS’ $7.1 billion core real estate portfolio, CalEast’s performance has weighed significantly on the pension’s returns for the real estate asset class.
In transferring control of the core portfolio to GI, CalPERS is betting on one of its existing opportunistic fund managers. The pension is an investor in GI’s latest private equity buyout funds, which also make real estate investments, including the $1.45 billion Fund II, which closed in 2006, and the $1.9 billion Fund III, which closed in October 2009. To date, almost $590 million has been called.
In taking over the CalEast North America portfolio, GI said it had hired KKR’s former head of industrial and real estate group John Saer as managing director and executive chairman of the industrial portfolio. Saer will oversee the CalEast account, as well as “direct” GI’s separate account business.
RREEF has managed CalPERS’ second industrial portfolio, the $234 million CalWest pool of properties, since 1998. That portfolio has returned 16.4 percent since inception with a 6.5 percent return over the past year.
Under LaSalle’s stewardship, the CalEast portfolio grew considerably at the height of the market buying out the Chicago industrial REIT CenterPoint Properties Trust in 2005 for $3.4 billion, including debt and preferred stock.