PERE Forum Asia 2009: LP commitments to return to pre-downturn levels in 2010

General partners attending this year's PERE Forum in Hong Kong were today warned that despite the inability of many US pension funds to commit equity this year, they expect communication from GPs throughout the year. Those who listen to the advice will be well positioned to take advantage when their equity doors open again in 2010.

US pension fund commitments to real estate will return to pre-economic downturn volumes in 2010 but general partners must keep up regular and transparent communication with them if they are to benefit.

Speaking at the PERE Forum Asia 2009, Michael McCook, former CalPERS head of global real estate, said while 2009 would be a “forgotten” year in terms of fundraising, 2010 investment into real estate would return to between 10 percent and 30 percent of US pension fund capital.

This allocation, he predicted, would be split 33.3 percent to Europe, 33.3 percent to the US and 33.3 percent to Asia. Lot sizes would typically be $100 million for funds managing $50 billion or more and none would be likely to invest more than 25 percent of the equity in any one vehicle.

McCook said he polled 12 pension fund managers who have suffered from the denominator effect this year who expected to be able to reassert previous allocation levels next year.

He told delegates to the conference in Hong Kong that pension funds were reducing their staff numbers, resulting in more delegated work to pension fund consultants.  “Consultants are getting more power as staff sizes within pension funds shrink,” he said. “Shmooze them for a while, knowing this is a year of foreplay, before you get into serious activity.”

He said limited partners have become more transparency-aware: “If you have investments with partners, then communicate with them. If you are changing your strategy, let them know.”