The California Public Employees’ Retirement System has chosen two firms to interview in its search for a real estate consultant that will serve for the next three years.
During a public meeting this week, the CalPERS investment committee approved the two finalists: Meketa Investment Group, its current consultant, and RCLCO Fund Advisors, a boutique firm that in 2017 landed the top real estate advisory role at the other large pension fund in Sacramento – the California State Teachers’ Retirement System.
CalPERS requested proposals for four consulting positions in March, according to meeting documents, including one each for investments in real estate, private equity and infrastructure, as well as a general investment consultant. Meketa bid on all four contracts, but the request for proposal precludes the investment board from granting any firm more than three advisory positions and the general consultant from holding any asset-class-specific contract.
A sub-committee of four investment committee members will interview both firms and make a final recommendation to the board later this year.
Meketa took over as CalPERS’s real estate consultant after its acquisition of the Portland, Oregon-based advisory firm Pension Consulting Alliance earlier this year. PCA began a five-year contract for the position in 2017, but CalPERS can terminate that agreement early if it selects RCLCO, according to meeting documents.
Founded in 1967, RCLCO has an extensive history of advising developers, municipalities, universities and other entities on real estate pursuits and master plans. Its institutional client list includes the Alaska Permanent Fund, the Arizona State Retirement System and the Teachers’ Retirement System of the State of Illinois. It took over as the CalSTRS real estate investment consultant last year after outbidding its predecessor, the Townsend Group, in 2017.
With $37 billion and $32.5 billion allocated to the asset class, respectively, CalPERS and CalSTRS are the two biggest institutional real estate investors in the US. Representing both would be a coup for Washington, DC-based RCLCO, which boasts 65 employees in four offices.
For its part, Meketa has a staff of more than 180 in six US locations and an office in London. The Boston-based group represents more than 200 institutions.
Both firms have proposed similar fee schedules, according to public documents. Meketa’s fee would total $3.6 million over three years compared with $3.51 million for RCLCO.
A move toward autonomy
The CalPERS investment committee is also considering changing its real assets investment prudent person opinion process, which requires the pension fund to get a third-party opinion before making investments that surpass a certain threshold.
On August 19, Meketa recommended raising the threshold from $50 million to $100 million, noting that the amount of capital allocated to real estate and infrastructure, as well as deal values in those two asset classes, “have grown considerably” since the PPO was implemented a decade ago, according to Meketa’s written opinion.
The consultant expects the increase to alleviate the “significant constraint” on CalPERS’s real assets program by granting managing investment director Paul Mouchakkaa discretion over a wider swath of investments.