The San Francisco City and County Employees’ Retirement System (SFERS) is postponing any plans to make new commitments to real estate amid the current market turmoil.
The $15.7 billion pension fund had planned to invest up to $100 million to the asset class over the next six to nine months, however, according to documents presented at the plan’s recent board meeting and seen by PERE, that will now not happen.
The fund, advised by The Townsend Group, said it would not be “prudent” to invest the remainder of its 2008/09 capital in either core, value-add or opportunistic strategies.
SFERS has already invested $102.5 million this year, including $52.5 million with CapMark Financial’s individually managed value-add and high return accounts and $40 million to Rothschild Realty Management’s value-add debt fund, Five Arrows Realty Securities V (FARS V).
Going forward, SFERS said new real estate funds would only be invested in when the strategy was “sustainable and fully underwritten with solid market research, and [there is] alignment of manager interest.”
San Francisco, debating its semi-annual real estate review, however said distressed debt strategies would be an area of interest to the pension, with investment officials and Townsend expected to “look for programmes to execute in that environment.”
“Opportunities for SFERS are more likely to come in distressed debt markets and emerging managers markets for the balance of 2008 and 2009. We may see increased distressed property sales later in 2009 or 2010,” the review to SFERS’ board stated.
As of the end of June this year, San Francisco had allocated 12.1 percent of its total investment fund to real estate, against a target allocation of 10 percent and a maximum of 13 percent. In the year to June, real estate reported net returns of 4.9 percent against the NPI benchmark (plus 150bp) of 10.8 percent.