California State Teachers Retirement System (CalSTRS) is investing in core real estate in Asia for the first time, having committed $200m (€147m) to the Invesco Real Estate Asia Fund.
The open-ended fund, which has attracted capital from other US investors, including Los Angeles County Employees Retirement Association and San Bernardino County Employees’ Retirement Association, will focus at the outset on cities in Japan and Australia.
CalSTRS said it was seeking a long-term exposure to Asian real estate – targeting returns of 6-8% – rather than a cyclical market play.
The pension fund stated: “Asia is a region where we saw opportunities in the market but no vehicle to seize the opportunity, until this fund came along. We believe it’s a market CalSTRS should be in.”
Invesco plans to grow the fund to $1bn and will focus on office, retail, industrial and residential assets in Japan and Australia. Investments in South Korea, Singapore, Hong Kong and China are expected to follow further down the line.
M&G Real Estate is also targeting Japan and Australian for its core Asia real estate portfolio. The manager has made $200m of acquisitions: F Parc Tenjin in Fukuoka, Sakurabashi IM Building in Osaka, and 628 Bourke Street in Melbourne.
M&G fund manager Erle Spratt said: “F Parc Tenjin is an extremely well located residential asset offering stable long-term income, and Sakurabashi IM Building is a shorter-term growth investment that we expect to benefit from improving Osaka office market fundamentals.”
“Whilst we usually hold assets based on the long term fundamentals, we have the flexibility to take a tactical view where we see an opportunity to take advantage of shorter term market trends. We are constructing a portfolio in Japan comprising two-thirds income-oriented assets and one-third growth investments.”
Spratt added: “We are actively pursuing further opportunities in Australia, Japan and South Korea.”
CalSTRS’s investment in the Invesco fund is part of $375m of new commitments CalSTRS has made to real estate.
Two of its other commitments were to core open-ended funds in the US: $50m to the Principal US Property Account, and $75m to the UBS Trumbull Property Fund.
These commitments are both follow on investments for the pension fund. It had made a $100m allocation to the US Property Fund and $175m to the Trumbull Fund in June 2011.
CalSTRS stated in that both of funds were part of the ODCE Index and both had outperformed the benchmark.
The pension fund’s only new addition to its value-add portfolio was a $50m commitment to the Waterton Residential Property Venture XII. The fund buys apartments in the US that would benefit from new capital investment, aggressive asset management and/or repositioning strategies.
CalSTRS has had a relationship with Waterton since 2002. This involves five joint ventures and one co-investment. The total capital invested by the pension fund not including the new commitment is $915m.