California Public Employees Retirement System (CalPERS) is boosting its real estate allocation by $6bn.
The move is part of the pension fund’s move to rebalance its real estate portfolio in favour of core investments managed by separate account managers.
It also shows the continued attraction of real estate versus other asset classes. CalPERS recently decided to end its allocation to hedge funds.
The pension fund wants to invest $6bn in real estate during its 2014-15 fiscal year, CalPERS confirmed to IP Real Estate, and it will do this predominantly through its existing roster of managers.
Invesco Real Estate is one manager to benefit from the decision, receiving a $400m allocation for Core Multifamily Investors, an existing separate account fund managed on behalf of CalPERS. It invests in core apartment properties in the western region of the US.
The pension fund has allocated $600m to Institutional Logistics Partners, a core industrial strategy managed by Bentall Kennedy.
Another $400m has been earmarked for technology-related real estate in the US through its TechCore fund managed by GI Partners.
The long-term goal is to have 75% of the property portfolio in stable, income-producing assets.
The focus on core will mean CalPERS will be investing in an increasingly competitive market. According to industry sources, core properties in gateway markets like San Francisco and New York City have been trading at yields below 4%.
CalPERS was warned by Pension Consulting Alliance in the summer about “heated” core real estate markets. The increased competition in the asset class had made it particularly important to “maintain a disciplined approach to underwriting”, the consultancy said in a report.