Strategic Partners paid $2.3bn for CalPERS RE portfolio – update

One of the co-investors that participated in the transaction was The Texas State Board of Education, which oversees the Texas Permanent School Fund, and contributed $50m.

The story was updated in the second paragraph with details regarding what the total investment cost typically entails.

The total investment cost for the California Public Employees Retirement System’s real estate portfolio sale to Strategic Partners was $2.3 billion, according to a board meeting webcast by The Texas State Board of Education, which oversees the Texas Permanent School Fund.

Although the $2.3 billion represented the ultimate cash payment for Strategic Partners and co-investors, it’s important to note that it may not necessarily reflect accurately the purchase price, which is often adjusted for interim distributions received by a seller prior to the closing date.

The endowment contributed $50 million to Strategic Partners Real Estate Special Opportunities I, which is the vehicle that purchased CalPERS’s $3 billion portfolio of real estate fund stakes.

The vehicle raised $614.7 million as of 20 October, according to a filing with the Securities and Exchange Commission. The filing also revealed that the first sale in that fund was made on 25 September.

The Texas Education Agency’s co-investment was approved in October and needed a special waiver from the board since it exceeded the $35 million investment limit for co-investments. The co-investment from Texas Permanent School Fund represented about 2.2 percent of the total purchase price.

The average age of the funds in the portfolio is about nine years old and the expected target internal rate of return is about 20 percent, according to the webcast.

The purchased portfolio is made up of 43 international and domestic funds from CalPERS’s non-strategic, legacy real estate portfolio. It comprises more than 350 underlying properties, predominantly in the US, with a significant exposure to Europe as well, and a small exposure to emerging markets.

One of the underlying funds is Harbert European Real Estate Fund II, according to a UK regulatory filing. The market value of CalPERS’s stake in the fund was $20 million as of 31 March, representing 0.4 percent of its legacy assets, according to a document from the California pension plan. The fund had a negative 5.14 net internal rate of return for the first quarter and a 6.9 percent net five-year IRR, as of 31 March.

Harbert European Real Estate Fund II is a value-add European real estate fund managed by Harbert Management Corporation. The fund closed in 2007 with $305 million and is now fully invested, according to data from PEI’s Research and Analytics division.

Strategic Partners  was not available to comment by press time. The Texas State Board of Education did not return a request for comment.