UNITED STATES - San Diego City Employees' Retirement System is growing its international real estate investment program by investing in a commingled fund and moving its domestic REIT program to a global stage.

The pension fund has made a €20m commitment to the Europa Fund III commingled fund, as Europa has a history of investing in many different property types and the pension fund believes there will therefore be significant diversification achieved by investing in this commingled fund.

Europa has in the past held investments in the office, industrial, retail and residential sectors along with exposure to specialist property types such as hotels, self storage and land, but is particularly known diversifying its exposure across Europe.

The firm previously placed capital in 14 countries, the largest exposure being 23% in the UK at an earlier date, along with 14% in Germany, 11% in Poland and 11% in the Netherlands.

San Diego City is projected to achieve a net IRR of 20% through the Europa Fund III, which in turn is seeking to raise €800m and then place 65% leverage on the commingled fund on a portfolio basis.

Its overall investing strategy is to buy existing assets in the European Union, Norway and Switzerland which could be brought into the core institutional market for sale following active asset management, change of use or refurbishment.

San Diego City has also confirmed RREEF will manage a global investment mandate for its REIT investment program, which was worth $122.3m (€78.4m) at the end of 2007.

The pension fund believes a global REIT strategy will allow it to invest in more countries and economies than it could gain through the unlisted market, and increase the fund's overall diversification of its assets.

By the end of Q3 2007, the pension fund had just 1.7% of its real estate assets in the international sector but its long-term goal is to have 40% of its real estate portfolio in overseas assets.

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