CalPERS buys RE fund interest for $75m

The California Public Employees’ Retirement System made a secondaries purchase with its latest real estate commitment, according to board documents posted before its May 15 meeting.

The public pension system committed $75 million to consolidate its stake in CIM Urban Real Estate Fund, a vehicle to which it originally committed $125 million in December 2000, according to earlier board documents. Other investors in the opportunistic fund, run by Los Angeles-based CIM Group, include the California State Teachers’ Retirement System, which allocated $245 million, according to PERE data.

“We executed a secondary transaction to consolidate our ownership in the CIM fund,” a CalPERS spokeswoman told sister publication PERE.

The pension system has largely been a seller in the secondaries real estate market. In 2015, the pension system executed the largest-ever secondaries deal with a $3 billion sale of 43 international and domestic funds from CalPERS’ non-strategic, legacy real estate portfolio, PERE previously reported.

CalPERS also released information about its portfolio management costs ahead of next week’s meeting. The pension system cut its private real estate investment costs by about 7 percent between 2014 and 2015, according to board documents.

Across its portfolio, CalPERS has been seeking to reduce management costs and complexity by trimming its external manager relationships and slashing fees. In real estate, CalPERS spent $201.6 million on management fees in 2015, down from $216 million the previous year, according to materials prepared by Cost Effectiveness Measurement, a benchmarking company.

For its $32.3 billion in private real estate in 2015, CalPERS’ cost was 62.4 basis points, coming in lower than its peer average of 83.7 basis points, saving the pension system $69 million compared to its peers, according to CEM.

At the end of 2015, the pension system had 9 percent of its portfolio invested in real estate, above its peer average of 6 percent.

Across asset classes, the US’s largest public pension system saw the greatest reduction in fees for private equity between 2014 and 2015, cutting management fees to $331.4 million in 2015, down 40 percent year-on-year.

Overall, CalPERS’ 2015 investment cost for its $290 billion portfolio was $951.2 million, down from $1.19 billion a year earlier.

CEM noted that, although the private asset management fees reported by CalPERS are far lower than those of its peers, the service provider collects gross fees based on limited partner contract terms due to inconsistent data available. It pointed to the Institutional Limited Partners Association’s standardised private equity fee reporting template as a tool addressing that problem, but said it could be “several years” before investors report the data in a consistent, standardised manner.

To benchmark the system’s returns and fees, CEM compared CalPERS’ results with that of 319 other global pension funds. It designated 14 of those pension funds as peers for CalPERS.