The California Public Employees Retirement System (CalPERS) is considering ramping up its real estate development activity as the availability of existing core assets continues to dwindle.
The board of the $291bn (€258bn) pension fund will meet next week to formalise a ‘build-to-core’ strategy, which could make up to 10% of its real estate portfolio.
Pension Consulting Alliance, real estate consultant for CalPERS, said the allocation would allow for the creation of new core assets in markets that offer limited opportunities to acquire existing assets.
The strategy, which will be discussed at a board meeting on April 18, would run across the office, industrial, retail and apartment sectors.
A board meeting document also shows that CalPERS plans to continue to reduce the number of real estate managers it employs. Proposed changes would see its real estate manager roster drop from 24 to 15. The aim of the reduction is to increase efficiency, governance, alignment and the control of costs.
CalPERS is also considering creating real estate mandates that would pursue exclusively unleveraged, all-cash acquisitions.
Wilshire Associates, the general investment consultant for CalPERS, stated in the board meeting document that this would ensure managers were focusing on maximising returns through pure real estate expertise rather than financial engineering.
The approach would also enable in-house investment staff to have control over the total amount of leverage in the real estate porfolio.
CalPERS is also planning to have at least 75% of its real estate portfolio invested in core US properties.