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CalPERS consolidates real assets as infra outperforms

However, infrastructure is still just 1% of the pension's portfolio, compared to 9% for real estate and 0.6% for forestland.

Infrastructure is outperforming real estate and forestland for The California Public Employees’ Retirement System, as the pension prepares to consolidate the asset classes into a single category.

The $311 billion public pension said in materials posted ahead of its 17 April investment committee meeting it is merging the three asset classes into a single real assets category because of the similar investment characteristics shared by the three segments; difficulty in acquiring “material representation” in infrastructure and forestland; and desire to foster teamwork among the silos.

“Such consolidation is consistent with the asset class criteria specified in the CalPERS Total Fund Investment Policy,” the pension fund said in its meeting documents.

CalPERS will not change any of its staffing responsibilities within the real assets team, a spokeswoman told sister publication Private Equity Real Estate.

As of 28 February, CalPERS reported that infrastructure was generating a net return of 4.6 percent, compared to 3.6 percent for real estate and 0.2 percent for forestland. However, infrastructure currently comprises only 1 percent of CalPERS’ real assets allocation, more than forestland at 0.6 percent but well short of real estate’s 9 percent.

Overall, CalPERS has a real assets target of 13 percent of its portfolio.

In addition, CalPERS is changing its current benchmark, the National Council of Real Estate Investment Fiduciaries’ Open-End Diversified Core Equity, to another US core fund index with “virtually identical investment characteristics”, the MSCI Investment Property Databank. The pension fund said it made the change to simplify vendor relationships.

The index could also potentially extend to global real estate and infrastructure if those two segments grow large enough to justify inclusion.

During the last fiscal year ended June 30, real estate returned 7.1 percent, while infrastructure generated a 9 percent return and forestland was -9.6 percent, according to the pension system’s annual report. The overall portfolio generated a 0.6 percent return.

Jordan Stutts contributed to this story.