CalPERS approves new real estate asset strategy, will solicit new management bids

Business Wire, Dec 17, 1996

SACRAMENTO, Calif.--(BUSINESS WIRE)--Dec. 17, 1996--The California Public Employees' Retirement System (CalPERS) Board of Administration today signed off on a new strategic plan for its $4.2 billion core real estate portfolio, which includes a decision to conduct a nationwide search for firms that will help CalPERS maximize the return on its real estate portfolio.

The strategic plan, developed by the senior investment officer - real estate, David Gilbert, calls for only minor changes in the composition of the core portfolio; but it includes a significantly different approach in the management of the portfolio, which consists of apartment, retail, industrial and office properties.

The plan re-organizes the portfolio into property types and geographic regions of the country. Each firm chosen will be responsible for managing the existing portfolio, for making new investments in the particular property type and region, and have greater discretion than previously before for buying and managing properties.

Firms will dedicate a team of investment professionals to work exclusively for CalPERS. Firms must be willing to better align interests and will be asked to consider co-investing and incentive fee structures.

The program calls for 25 to 40 percent of its core real estate assets to be invested in office properties, 20 to 35 percent in the retail sector, 15 to 25 percent in industrial properties and 10 to 20 percent in apartments.

About 25 to 50 percent of the core portfolio will be invested in the West, 15 to 30 percent will be invested in the South, 15 to 30 percent in the East, and 10 to 25 percent in the Midwest.

The management selection process will begin with a series of requests for proposals by property type, to begin in early 1997 and to be completed by the end of the year. This approach makes it easier for CalPERS to select managers based on expertise in specific areas.

The board also approved the strategy for the apartment portfolio and is expected to consider strategies for other of the remaining sub-portfolios over the next several months.

"The real estate strategic plan approved today is a blueprint for effective real estate management now and into the 21st century," said William D. Crist, president of CalPERS board of administration. "It gives us the opportunity to attract the best and the brightest real estate professionals to help us grow this important asset class, while increasing our chances for the very best strategic alliances."

Charles P. Valdes, investment committee chair, agreed. "The key objective of this approach is to maximize alignment of interests between CalPERS and the management teams we select to manage these assets, and to create an environment where responsibility and accountability are crystal clear. I believe this is the recipe for the next century in the real estate market," he said.

The new strategy is the second major asset class strategy approved by the board in recent months. Several months ago, it signed off on a strategy for consolidating its private equity programs. Today, the board approved a request for proposal (RFP) to obtain consultants for this asset class. The RFP is expected to be issued in January 1997 and targeted for completion by July 1997.

Existing alternative and private equity investment consultant contracts with Pacific Corporate Group and Hamilton Lane Advisors will be extended through Sept. 30, 1997.

The real estate portfolio represents 5.7 percent of the $107 billion asset portfolio. Core office, retail, industrial and apartment properties represent $4.2 billion, with the remaining $1.9 billion devoted to specialized assets such as timber, housing, land and other specialized programs.

CalPERS provides retirement and health benefits to more than one million current and retired public employees and their families.

CONTACT: California Public Employees' Retirement System

Brad Pacheco/Pat Macht, 916/326-3991