The $17.27 billion pension plan approved the commitment at its August 14 board meeting. According to SFERS’ chief financial analyst Robert Shaw, the investment marks an effort by the pension system to move away from core investments towards opportunistic funds and to gain more exposure in greater China and Asia.
“We’re hoping to make a lot more Asia-focused investments in all alternative asset classes,” said Shaw. “It’s a growing market, and we hope to have a larger footprint there.” He mentioned that SFERS executives had known the principals at Gaw for a long time before making the commitment, which led to a level of comfort when investing.
The Gaw fund is expected to hit its $1 billion hard cap before October. The Hong Kong-based private equity real estate firm plans to use the fund’s capital for office, retail, hotel and residential properties in China’s Tier II and Tier III cities.
The Gaw commitment is SFERS’ first real estate investment in Asia since its $25 million commitment to Fortress Investment Group’s Fortress Japan Opportunity Domestic Fund II in March 2012. The Fortress fund, which closed on $1.47 billion in equity from 73 investors in December 2012, is planning to use the capital for real estate-related debt and other assets.
SFERS’ real estate investments currently total 9 percent of its target 12 percent allocation. The pension system announced a plan to reorganize its asset allocations earlier this year, issuing an RFP for a new real assets manager in May. Under the new investment program, the real estate allocation will fall under real assets. Though the search committee has made a consultant recommendation, the finalist has yet to present to the board. As a result of the search and impending shift in investment focus, the board chose to defer its annual real estate investment presentation until early 2014.