Infra, real estate drive CalPERS’ returns

Infrastructure, one of the $301bn pension's newer programmes, beat its benchmark by 932 basis points over the 12-month period.

The California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the US, was able to achieve a modest gain in return on investments in the fiscal year ending June 30, 2015, despite challenging world markets and economies thanks to the strong performance of its real estate and infrastructure investments, the fund said in a recent statement.

Real estate and infrastructure, which together with forestland comprise CalPERS’ real assets portfolio, respectively returned 13.5 and 13.2 percent over the 12-month period. The preliminary returns outperformed the pension fund’s real estate benchmark by 114 basis points and its infrastructure benchmark by 932 basis points.

CalPERS’ three-year and five-year returns, of 10.9 and 10.7 percent respectively, also exceeded its policy benchmarks by 59 and 34 basis points.

“It marks the first time since 2007 that the CalPERS portfolio has performed better than the benchmarks for the three- and five-year time periods, and is an important milestone for the system and its investment office,” CalPERS said in the statement.

Another milestone, according to Brian Chase, a partner at placement services firm Campbell Lutyens, is that “Since the programme was established in 2008, I believe this is the first time at CalPERS that infrastructure has had the highest performance of any asset class versus its relevant benchmark.”

Launched in August 2008, infrastructure is one of CalPERS’ newer programmes. While the pension fund’s target allocation for the asset class is 3 percent, in May 2014 CalPERS adopted a lower interim target of 2 percent. Last April, it decided to lock in the lower target through April 2016 due to low interest rates and high valuations.

With the infrastructure portfolio representing 0.7 percent of CalPERS’ total portfolio, the pension fund is still under-allocated to the asset class. That is one of the reasons why infrastructure – along with forestland – has been excluded from CalPERS’ plan to reduce the number of external money managers it employs as part of a cost-saving effort. 

While the pension fund aims to reduce the overall number of direct relationships with external managers from 212 to about 100 over the next five years, it intends to increase the number of external managers it uses for its infrastructure and forestland portfolios from six to 10 over the same period.

Based in Sacramento, CalPERS administers health and retirement benefits on behalf of 3,089 public school, local agency and state employers. The institution counts more than 1.7 million members in its retirement system and more than 1.3 million in its health plans.