Real Estate Investing—Especially in Asia—Flourishes

(August 16, 2012) – Most major institutional funds are happy with their current real estate investments, and are looking to make new ones over the next 12 months, according to new survey data from Preqin.

These results “suggest an increase in appetite for private real estate funds,” said Andrew Moylan, a real estate data manager with Preqin, in a statement. A total of 70% of investors with at least $10 billion said they are likely to invest in the coming year, while only 26% of investors responsible for less than $1 billion answered the same.

Optimism over real estate trended geographically, as well. Just 32% of investors in Europe are likely to commit to new investments during the next 12 months, while nearly three-quarters (72%) of respondents in Asia said they are seriously considering it. In North America, 32% responded favorably to the idea.

California’s state employees’ pension system (CalPERS) is definitely interested. The $238 billion fund has committed $530 million to two new real estate funds that will target investments in China, according to a Thursday announcement. One of the funds, which will receive $480 million from the West Coast pension, will focus on “high quality office buildings in central business districts and retail malls in well-located, densely populated suburbs in the first and second tier cities” in mainland China and Hong Kong. The remaining $50 million is a second investment in ARA Asset Management’s Dragon Fund. CalPERS’ initial investment earned returns of 8.4% over the last three years. This time around, the fund will primarily target developed, urban property in mainland China, Singapore Hong Kong, and Malaysia.

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“Income growth and urbanization remain the key themes for growth in China,” said Joe Dear, CalPERS CEO, in a statement. “China’s office and retail sectors offer stable rental income and potential for capital value growth.”

Other investors apparently agree with Dear about real estate in general, and Asian property in particular. The majority (73%) of the more than 100 respondents to the Preqin aurvey—regardless of fund size—said their recent real estate investments has met or exceeded their expectations.

Read Preqin’s entire report here.

The new plan for 2012 to 2017 emphasizes the long-term goals and strength of the system, and suggests CalPERS will continue to engage with its critics.

(August 16, 2012) — The California Public Employees’ Retirement System (CalPERS) Board of Administration has approved a new five-year strategic plan to guide the nation’s largest public pension fund through what promises to be a trying stretch.

“This is an important milestone for our organization and is a testament to the collaboration, innovation and thoughtful thinking of our Board, staff and stakeholders,” said Rob Feckner, president of the board, in a statement.

The plan outlines three primary goals for the 2012-through-2017 period: improve long-term pension and health benefit sustainability; cultivate a high-performing, risk-intelligent and innovative organization; and, engage in state and national policy development to enhance the long-term sustainability and effectiveness of the programs.

“The initiatives in this strategic plan provide a high-level frame of reference to guide daily activities and anticipate risks and opportunities, and help CalPERS articulate what is important to us and our members,” said CEO Anne Stausboll in a statement. “Working closely with our stakeholders we will review our plan annually so it remains relevant through the years ahead.”

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CalPERS has been unusual in its willingness to engage with critics who have been railing against weak short-term returns and calling for reform. Feckner authored an op-ed in the Sacramento Bee, titled “Media is wrongly hyping pensions as a cause of city bankruptcies,” in which he offered “a little perspective” from the back end of the pension system. “CalPERS is a long-term investor,” Feckner wrote. “This concept is either ignored or misinterpreted by many on a regular basis, and is the greatest source of misunderstanding and misinformation about pensions. As a long-term investor, we fully expect a range of possible returns every year…If the media and our critics insist on looking at returns on a single-year basis they should tell taxpayers the full story – we posted gains not just in excess, but in significant excess of our goal of 7.5 percent 14 times in the past 20 years.”

The $237 billion fund’s new strategic plan suggests that CalPERS will continue its active participation in the growing discourse surrounding public pensions. Indeed, two of its stated objectives are to “clarify and communicate CalPERS’ perspective on pension, health and financial markets,” and “provide education and engagement opportunities to shape policy agenda and expand impact.” It seems Feckner has his op-ed pen at the ready.