San Francisco Employees Retirement System (SFERS) remains undecided over proposals for greater investment in local real estate.

A 3% target allocation to real estate in the nine-county San Francisco Bay Area – first mooted by the retirement board in 2013 – is still being mulled by the pension fund.

No plans were approved at a meeting this month. Its advisers, Angeles Investment Advisors and Cambridge Associates, warned against over-concentration in its real estate porfolio at a time when the pension fund is looking more broadly at real assets.

A recent board meeting document stated: “SFERS private markets team and Cambridge Associates recommend maintaining a broad allocation to real assets rather than carving the category into several pieces such as infrastructure, natural resources, or San Francisco-based real estate.” 

Advisers also cited “lofty valuations for the region” as a reason to be cautious before embarking on what could be a $594m (€521m) investment programme.

SFERS has asked for more due diligence by its investment staff before a final decision is made.

Investment staff will approach managers active in local real estate and evaluate the merits of entering into local co-investments with them.

The staff will also explore whether there are further efforts it can undertake to source and evaluate San Francisco-based real estate investment opportunities with attractive valuations and good prospective returns.

The pension fund has previously invested in San Francisco-based real estate with CIM Group, DivcoWest and Gaw Capital USA over the past 12 months.

The pension fund is already heavily exposed to San Francisco Bay Area real estate by virtue of its tax base, in which local real estate is a major contributor to City and County finances. Investing in local real estate could, therefore, create governance issues for the pension fund.

The idea for greater investment in local real estate was first raised by the retirement board in 2013.

The pension fund is also faced with a petition by trustees demanding not to invest in hedge funds.

Should SFERS proceed with the new Bay Area real estate allocation, it would become one of a small list of US pension funds with dedicated investment programmes for their local property markets.

Ohio Public Employees Retirement System, through its Grow Ohio programme, and the New York City’s five pension funds have both allocated to local markets.

SFERS recently approved a $150m commitment to Blackstone’s latest global opportunity fund, Real Estate Partners VIII.