real estate | Pension360

Canada Pension Buys Student Housing Manager

The Canada Pension Plan Investment Board (CPPIB) announced on Friday that it is dipping its feet in the UK college student-housing sector.

[Read the press release here.]

CPPIB paid $1.67 billion to buy Liberty Living, a company that works with dozens of UK universities to provide and manage housing for students.

Chart: How Institutional Investors Are Changing Their Allocations to Alternatives in 2015

Here’s a graphic that shows the percentage of institutional investors that are planning to change their target allocations to various alternative asset classes in 2015.

When it comes to increasing target allocations, 39 percent of institutional investors say they are going to increase their private equity investments in 2015.

Hedge funds may take the biggest hit; 34 percent of investors say they are decreasing their allocations to hedge funds in the coming year.

Chart credit: Coller Capital‘s Global Private Equity Barometer Winter 2014-2015

Pension Asset Growth Outpaced GDP Over Last 10 Years

The value of U.S. pension assets has outpaced GDP growth over the last decade, according to data from Towers Watson.

In that time frame, pension assets have grown at a rate twice that of the country’s GDP.

From the Wall Street Journal:

Pension investments in stocks, bonds, cash and alternative assets such as real estate have surged relative to the country’s gross domestic product over the last decade. The value of U.S. pension assets jumped over 89% while GDP rose roughly 42%, according to data from consulting firm Towers Watson & Co.

Those investments were worth an estimated $22.1 trillion last year, 127% of the country’s $17.4 trillion gross domestic product. That’s the highest percentage on record, and up nearly 32 percentage points from a decade earlier.

[…]

U.S. pension investments accounted for more than 61% of the $36.1 trillion global total. That total is 84% of global GDP. Global pension assets relative to global GDP are up roughly 15 percentage points from the decade earlier.

The dollar is strong relative to foreign currencies, and U.S. companies have more money available, which widens the disparity, Mr. Ruloff said. U.S. pension plans last year made 67% of their equity investments in U.S. stocks, according to Towers Watson.

Towers Watson reported last month that global pension asset values reached all-time highs in 2014.

San Francisco Pension Weighs Larger Emphasis on Local Real Estate

The San Francisco Employees Retirement System is deciding whether to increase its allocation to real estate in the San Francisco Bay Area.

Specifically, the board is weighing whether to begin allocating up to 3 percent of its assets toward such investments.

However, the area’s high real estate prices warrant caution, according to the fund’s advisors.

From Investments & Pensions Europe:

A 3% target allocation to real estate in the nine-county San Francisco Bay Area – first mooted by the retirement board in 2013 – is still being mulled by the pension fund.

No plans were approved at a meeting this month. Its advisers, Angeles Investment Advisors and Cambridge Associates, warned against over-concentration in its real estate porfolio at a time when the pension fund is looking more broadly at real assets.

A recent board meeting document stated: “SFERS private markets team and Cambridge Associates recommend maintaining a broad allocation to real assets rather than carving the category into several pieces such as infrastructure, natural resources, or San Francisco-based real estate.”

[…]

Investment staff will approach managers active in local real estate and evaluate the merits of entering into local co-investments with them.

The staff will also explore whether there are further efforts it can undertake to source and evaluate San Francisco-based real estate investment opportunities with attractive valuations and good prospective returns.

The San Francisco Employees Retirement System manages $20 billion in assets.

Photo by ilirjan rrumbullaku via Flickr CC License

San Francisco Pension Approves 5 Percent Allocation to Hedge Funds

After months of discussion and delays, the San Francisco Employees Retirement System on Wednesday voted to invest up to 5 percent of its assets in hedge funds.

The pension fund has not previously invested in hedge funds. Its investment staff had previously recommended a 10 and a 15 percent allocation, but the board voted 6-1 for a 5 percent investment.

New Jersey Pension to Invest $300 Million in U.S. Apartments

The New Jersey Division of Investment, the entity that invests the state’s pension assets, has committed $300 million to be invested in the U.S. apartment sector.

The New Jersey Division of Investment has formed a $303m (€267.8m) separate account relationship with TGM Associates to invest in US apartments.

The pension fund allocated $300m for its 99% ownership of the account, in which TGM will hold $3m (1%).

The account, the pension fund’s first with TGM, will pursue a non-core strategy.

New Jersey is currently under-allocated to the apartment sector, with 16% of its portfolio invested in the property type.

Average multifamily exposure across the NCREIF-ODCE Fund Index is around 25%.

TGM’s investments in apartments for previous separate account relationships was a decisive factor for New Jersey.

A separate account for a large public fund delivered a 10.5% net IRR and a 1.9x multiple of invested capital since inception.

The Division of Investment managed $81.22 billion in pension assets as of July 2014.

Texas Teachers Pension Commits $465 Million to Three Real Estate Funds

The Teacher Retirement System of Texas has committed $465 million to three real estate funds, which will invest in a gamut of sectors including residential, industrial, hotel, retail and offices.

For CalPERS CIO, Lack of Stock and Bond Experience Not a Problem

The LA Times on Sunday published an interesting and thorough profile of CalPERS chief investment officer Ted Eliopoulos.

It chronicles Eliopoulos’ beginnings as an Ivy League tennis star, his appointment to CIO of the country’s largest public pension fund, and his headline-making decision to pull out from hedge funds.

The piece also dives into why Eliopoulos was an interesting choice for the CIO position, given that he was an expert in real estate but had little experience with stocks or bonds.

From the LA Times:

In turning to Eliopoulos, a consummate insider, CalPERS’ board made what is in some ways an odd choice.

Trained as a lawyer, not an investment professional, Eliopoulos has spent much of his career in state bureaucracies and had never directly managed stocks or bonds — more than 70% of the total CalPERS portfolio — before being named interim chief investment officer a year ago.

His area of expertise had been in buying, selling and managing real estate, which makes up only 10% of CalPERS’ portfolio and remains a rehabilitation effort.

[…]

Some believe even the most deft investor can’t keep the system solvent over the long term. But his supporters said he’s up to the task.

Former state Treasurer and Democratic Party Chairman Phil Angelides called Eliopoulos, whom he mentored, a methodical thinker and steady manager.

“He’s not threatened by having good, strong people around him,” Angelides said.

[…]

His lack of stock-and-bond experience may matter less than his ability to manage the massive investment operation that includes 400 in-house staffers and dozens of highly paid consultants and advisors, said investment professionals.

“It’s perfectly possible to be a very effective leader even if you don’t have all the experience in the weeds,” said Michael Rosen, a principal at Angeles Investment Advisors, which advises institutional investors.

Read the whole profile here.

Photo by rocor via Flickr CC License

CalPERS Taps SIO for Real Assets From Morgan Stanley

CalPERS has hired Paul Mouchakkaa to be its senior investment officer for real assets.

Mouchakkaa has previously been a managing director at Morgan Stanley and Pension Consulting Alliance. He’s also worked at CalPERS as a real estate portfolio manager.

Kolivakis: 5 Reasons Behind Canada Pensions’ Real Estate Binge

Canadian companies and pension funds collectively invested $2.75 billion in commercial U.S. real estate in the first month of 2015.

In 2014, that number was a hefty $9.7 billion. What’s behind the binge? Leo Kolivakis of Pension Pulse gives 5 reasons why Canada’s pensions are snapping up real estate in the U.S., and elsewhere.

_______________________________

By Leo Kolivakis, Pension Pulse

Why are they doing this? There are a few reasons. First, real estate has long been heralded as the best asset class among Canada’s large public pension funds which are increasingly shifting assets away from volatile public markets into private markets, especially real estate and infrastructure which offer more predictable yields over the long-run.

Second, Canada’s large pension funds aren’t dumb. They read this blog and many other market sources and I’m sure the most savvy of them agree with me, Canada’s crisis is just beginning. This is why they’re scrambling to snap up as much U.S. and European real estate even though the loonie keeps declining. They know it will fall further but they also know there are better opportunities outside of Canada at this time given their long investment horizon.

Third, some of Canada’s large public pension funds, like bcIMC, are much more exposed to Canada’s commercial real estate market than others. bcIMC recently announced it agreed to sell Delta Hotels and Resorts to Marriott International for $168 million, but it has a lot more work to properly diversify its real estate holdings outside of Canada.

Fourth, in my opinion the Caisse’s real estate division, Ivanhoé Cambridge, is by far the best real estate investment management outfit in Canada. There are excellent teams elsewhere too, like PSP Investments, but Ivanhoe has done a tremendous job investing directly in real estate and they have been very selective, even in the United States where they really scrutinize their deals carefully and aren’t shy of walking away if the deal is too pricey.

Fifth, I don’t see interest rates rising anytime soon. In fact, I see central banks pumping a lot more liquidity into the global financial system. And as I recently explained, I’m not in the camp that the Fed will raise rates in 2015 and risk making a monumental mistake.

Having said all this, the rush into real estate and other illiquid alternatives worries me. Why? Because I’m increasingly worried about global deflation and the long-term effects it will have on all investments, especially illiquid private markets.

Don’t get me wrong, done properly, real estate, infrastructure and private equity are great asset classes. But as global pension funds and sovereign wealth funds topple over each other to find deals, they are significantly bidding up prices, lowering prospective returns on all private market investments, and this will really hurt them if a prolonged period of deflation sets in.

A long time ago I wrote a comment asking whether pensions are taking too much illiquidity risk. I think you should all read that comment again and keep it mind as you plow into U.S. and global real estate. Sure, pensions should take the long, long view, but they also need to be acutely aware of price entry and how a prolonged period of debt deflation impacts all their investments, especially private market investments.

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