NORTH AMERICA – The California Public Employees Retirement System (CalPERS) will be considering an increase of $1bn (€730m) for its hard-dollar caps for new investments in the annual delegation limits for real estate at its 18 February investment committee meeting.
The change in the limits is for the real estate base core portfolio from a $6bn cap to a $7bn cap, and the total real estate portfolio from a $7bn cap to an $8bn cap.
Ted Eliopoulos, acting CIO at CalPERS, wrote in a board-meeting document that the current dollar cap for new investments in the real estate programme could impede the investment staff’s ability to act on new investment opportunities and thus restrict the growth of the asset class.
The proposed increases would allow the real estate senior investment officer and the pension fund’s CIO the delegated authority to act on investment opportunities and grow the assets class to its targeted allocation.
The existing cap limits have been in place for CalPERS since July 2011.
The value of the total fund has grown significantly since then and has resulted in the formula-based limits being surpassed by the hard-dollar limits.
The total real estate programme now has a new investment hard cap of $7bn, or 30% of the policy target.
At this time, 30% of the target would be about $8.45bn.
The $8bn cap will remain to mitigate potential vintage year exposure.
Pension Consulting Alliance, CalPERS’s real estate consultant, wrote in a board-meeting document that it supported the pension fund in its request to revise the delegated hard-cap limits.
It said it did so as a result of the evolution of the overall portfolio and the real estate investment programme, and the continued challenges with prevailing market conditions.
PCA envisaged a scenario where a manager may have used up much of its investment capacity allocated at the beginning of the year and yet discover a large prospective acquisition consistent with its strategic plan.
This might happen as a result of CalPERS emphasising direct investments and seeking reliable core investments.
The pension fund has its managers pursue individual assets of the largest scale and value.
These investments are typically with the four main property types of office, industrial, retail and apartments located in the US.