UNITED STATES - CalPERS is adding a further $500m to its existing $3bn invested in Asia real estate, via a local fund focused on mature regional markets and China, while the same amount will be placed in commingled funds.
The Asia Dragon fund, with a target size of $1.5bn and a forecast 18% return, will focus on the private property market, mainly residential development projects in "highly urbanised major cities" and commercial real estate development projects, according to Clark McKinley, a CalPERS spokesman. The fund will also target "underperforming assets in good locations".
Markets slated for investment include Singapore, Hong Kong, Malaysia and China - property markets identified by the scheme in a press statement as "strong and growing".
However, Chinese real estate will make up no more than a quarter of the fund and no single Asian market will account for more than half of the fund's assets.
ARA, the asset management arm of Hong Kong real estate firm Cheung Kong, with $4.7bn under management, is sponsoring the fund.
ARA - which CalPERS pointed out is a dominant player across sub-sectors, including housing, office, retail, industrial, and infrastructure - has also floated REITs in Hong Kong, Singapore and Malaysia. The new investment, announced last week, will be the $245bn (€181bn) pension scheme's first with this fund manager.
CalPERS' $3bn allocation to Asian property makes up just a fraction of a $34bn global real estate sector allocation. The Asian allocation returned 27.8% at the end of 2006.
The scheme has not set a target investment allocation for real estate in the region. However, the CalPERS Board recently approved a proposal to raise the target for international investments, including Asia, to 50% of a total $20bn portfolio, with a range of 10—60% investment managers can follow at their discretion.
"There's no timeline for getting to that 50% target; rather it's part of a restructuring plan for our real estate asset class," McKinley told IPE Real Estate.
Senior investment officer Ted Eliopoulos said in a press statement the commitment was "a strategic step as we restructure our programme to respond to market opportunities into the next decade".