UNITED STATES - The California Public Employees' Retirement System (CalPERS) has increased its allocation to real estate by 2%, to provide around $4bn (€2.88bn) of extra investment into the sector.
At its Board meeting on December 17, the $250bn pension fund announced the results of its tri-annual allocation study, following input from its real estate consultant, Pension Consulting Alliance.
CalPERS revealed there were several factors behind the decision to increase the allocation from 8% to 10% over the next three years, including the recent high level performance by the asset class.
It reported 4.3% growth in the real estate portfolio during the third quarter of 2007, while yearly growth reached 14.8% and the three-year return was 28.6%.
That said, CalPERS admitted it was nearing the limit of its previous targeted allocation as it had already invested 7.8% of its assets on a cash basis.
Similarly, the fund confirmed it is in the process of working out a new strategic plan, and is looking to invest most of the new capital in a variety of value-added and international strategies, as well as reaching its long-term goal of raising the international real estate part of the portfolio to around 50%, which will include investments in Europe, Asia and Latin America.
In addition, a variety of value-added investments will be added to the portfolio, as the fund can invest in loans secured directly or indirectly by real estate, using B-Notes, mezzanine, whole mortgage loans, preferred equity, CMBS and CMBS related products.
A recent example of this was CalPERS' $200m commitment to the JER US Debt Co-Investment Vehicle, L.P. where it is the only pension fund invested in the vehicle.
Robert Valdes, chair of the investment committee, said: "These revised allocation markers reflect the promise of our private equity, real estate and asset-linked investment classes. By hitting the reset button every few years, we keep our portfolio balanced and diversified in a fluid market that never stands still."
Part of this new allocation to real is being financed by changes to the pension fund's fixed income and equity portfolios, to place more focus on venture capital, commodities and infrastructure.
CalPERS said it will continue to target 66% of its portfolio on equities, but it has reduced its allocation to global publicly traded stocks from 60% to 56% and increased private equity investment by 4% to 10%.
It also confirmed a 7% cut in its fixed income allocation to 19%, while investment in inflation-linked assets will have a 5% allocation.