UNITED STATES - California Public Employees Retirement System has formulated ranges for investing additional capital in emerging and frontier markets and put unveiled its investment guidelines for investing in infrastructure.
PCA Real Estate Advisors gave a presentation to the pension fund board on 18 August on the prospects for the emerging and frontier markets, as the aim is to lay the groundwork for a long-term increase in the pension fund's asset allocation to international real estate and emerging markets in particular.
Jane Delfendahl and Bob Eberhardt, opportunistic/REIT portfolio staff portfolio managers at CalPERS were involved in the discussion by CalPERS', according to CalPERS ‘ interim chief investment officer Anne Stausboll, but further is likely be needed as she said "the information item was an outgrowth of the strategic plan".
CalPERS first proposed shifting more real estate investments in global markets in Autumn last year, at around the same time it also revealed plans to invest $1bn in infrastructure.
One of the key factors in investing in emerging markets real estate is the trading patterns of Asian countries, excluding Japan, are for more intra-regional trading with each other, suggesting the United States is shrinking in importance in that part of the world, officials suggest.
The pension fund discussed investment ranges of up to 20% of total real estate investing for emerging markets and up to 5% for frontier markets and those ranges could be fully approved by the pension fund as early as the 15 September board meeting.
The new ranges would be a significant increase from the current amount that has been invested in these strategies. Through March of this year, CalPERS had invested 3.7% of its real estate portfolio in emerging markets and .1% in frontier markets.
CalPERS defines frontier markets as those areas that are smaller and more illiquid than emerging markets. Some examples would be for Europe Bulgaria, Croatia and Romania and in Asia Bangladesh and Vietnam.
At the same time, the pension fund has set several investment parameters for infrastructure as allocation to this investment class will amount to 3% of its total assets.
The goal, say officials, is to achieve an average annual investment yield of 5% over inflation over a five-year period by investing in infrastructure assets such as transportation, energy, natural resources, utilities, water, communications and other social support services.
CalPERS is now in the process of hiring an infrastructure staff - senior portfolio manager and portfolio manager - while a consultant, once selected in October is likely to begin work sometime in 2009.
The pension fund investment staff has already developed an extensive list of potential commingled fund offerings in this sector, and will now prepare to consider commitments, subject to due diligence, in the fourth quarter of this year.