California Public Employees Retirement System (CalPERS) is planning to give its emerging real estate fund managers more capital and greater discretion.
Five managers could be given discretionary separate accounts and allocated up to $500m each.
CalPERS, which has pioneered emerging manager programmes since 1991, started a programme for real estate in 2011, backing companies with less than $1bn assets under management and having managed up to three separate funds or accounts.
The five real estate emerging managers were initially given allocations of between $50m and $100m, had no investment discretion and worked with a ‘mentoring’ manager.
The move, to be discussed at next week’s boarding meeting, coincides with a wider decision to reduce the number of investment managers CalPERS works with across all asset classes.
CalPERS is planning to significantly reduce the number of managers it works with in real estate – from 51 to 15 – as a way to cut the amount of fees it pays to outside managers.
According to board meeting documents, real estate emerging managers could be allocated between $200m and $500m. Combined with existing allocations, this could amount to $2bn over the next five years.
Managers will also be given discretion, with oversight directly from CalPERS staff rather than mentoring managers.
The rationale behind the move is to reward emerging managers that have demonstrated success with their intitial allocations and to help grow the size of their companies to compete with the pension fund’s pool of established managers.
San Francisco-based AGI Capital is one of the emerging managers and has been working with The Resmark Companies as mentor.
AGI focuses on sourcing and developing urban infill apartment projects in San Francisco. Its plan is to increase its scope for projects in the nine-county San Francisco Bay Area region once it becomes an established manager.
CalPERS has four other real estate emerging managers that are all part of the Canyon Catalyst Fund, overseen by Canyon Capital Real Estate Advisors.
All four managers, Sach Properties, Rubicon Point Partners, Pacshore Partners and Paragon Commercial Group, have a mandate to invest in California real estate.