UNITED STATES - The California Public Employees Retirement System is thinking of expanding overseas and moving its international real estate allocation from its current 20% level to a 50% weighting.
CalPERS said at its August 13 board meeting both Europe and Asia now represent such a huge percentage of the investment marketplace, the pension fund feels it is a part of the real estate investment world which should not be ignored.
More importantly, the $239.5bn (€177bn) defined benefit pension fund considers real estate to be a physical business so should it expand the international real estate portfolio, CalPERS will also look at staffing new offices in London and Asia to oversee the expansion.
The pension fund believes this would help eliminate the long travel time to some international markets, as it takes 21 hours to fly from Sacramento to India, for example.
One of the major reasons CalPERS is now considering a growth of its international platform is real estate investment returns are not currently as strong in the United States and officials believe there are no indication this will change anytime soon.
Its strategy for international investing is likely to be to invest capital in the three areas of core, value-added and opportunistic real estate, the favored investment vehicle for CalPERS being large separate accounts with a limited amount of managers.
CalPERS' international real estate portfolio is currently valued at $4bn and has a 8% targeted allocation for real estate, figuring an 8% growth in the pension fund's total assets.
Funding expansion therefore shouldn't be a problem as this means the pension fund would have $30bn to be invested in the next five years, albeit CalPERS is also thinking of increasing the real estate allocation to 10%, to give the pension fund $36bn of equity to invest or in the region of $60-75bn if it applies 60-70% leverage.
All these changes are part of a strategic review of the real estate program that CalPERS has been working on this year, the first time this work has been done since 1996.
It could be some time before changes would come into effect and CalPERS has yet to gain approval for its proposals at the September board meeting. Should they be given the green light, the new policies would then be adopted in March of 2008 once the budget and staffing requests have been presented to the pension fund's finance committee.
