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Real estate powers big gain for CalPERS

The asset class was a key driver in helping the $300 billion pension system to deliver significantly higher returns than it had in the prior fiscal year.

After a slight dip last year, real estate was back on the upswing for the California Public Employees’ Retirement System (CalPERS) in its preliminary returns for the fiscal year ended June 30. Investments in income-producing assets such as office, industrial and retail properties generated a 13.95 percent gain, beating the pension plan’s NCREIF Fund Index – Open End Diversified Core Equity (ODCE) benchmark by 121 basis points over a one-year period and 202 basis points over a three-year period.

During a call with reporters yesterday, acting chief investment officer Ted Eliopoulos credited real estate, along with global public equity, with leading the strong performance for CalPERS’ overall portfolio, whose assets returned 18.4 percent at the end of the fiscal year and now stand at more than $300 billion. He noted that the gain marked the fourth year of double-digit investment returns for CalPERS in the last five years.

The results trumped the pension plan’s overall 13.2 percent gain during the previous fiscal year, but they still trailed its record 20.9 percent overall return during fiscal year 2010-11. Similarly, its real estate performance over the past 12 months was up from the 11.91 percent gain in fiscal year 2012-13, but it still came in below the outsized 15.9 percent return from fiscal year 2011-12.

As in the previous fiscal year, real estate once again was the third-best performing asset class, after public equity, which generated a 24.8 percent during fiscal year 2013-14 and exceeded its benchmark by 0.5 percent, and private equity, which yielded a 20 percent return but underperformed its benchmark by 331 basis points.

The new fiscal-year results marked the first time that real estate was reported as part of the overall real assets program, which produced an overall net rate of return of 13.4 percent, exceeding its benchmark by 1.6 percent. Along with property, real assets also include the subcomponents of forestland, which returned a 2.53 percent gain, and infrastructure, which returned 22.8 percent.

As of April 30, real estate accounted for $24.6 billion, or nearly 87 percent, of the $28.4 billion real assets program and 8.5 percent of CalPERS’ total assets. Meanwhile, forestland and infrastructure collectively made up $3.8 billion, or 13 percent, of the real assets program and 1.3 percent of the overall portfolio.