CalPERS Set for Foreign Property Investments

March 28, 2006 ( - The California Public Employees Retirement System (CalPERS) is poised to make its first investments in home building in India and China.

Reuters reports that CalPERS wants its property investment abroad to increase from one-tenth of total property investment now to about half within five years.   According to Michael McCook, CalPERS’ senior real estate investment officer, the $183 billion fund also plans to increase the total money it devotes to property investment from 6.8% to 9-10% by the end of this year.

CalPERS’ own rules prevent it from investing in Chinese stocks (See Investment Restrictions Cause CalPERS to Miss Out ), but, according to Reuters, McCook convinced the fund’s investment committee that its standards on criteria such as pay and worker conditions were met by a proposed property trust partnership with Hines Interests LP.

CalPERS will close a deal with Hines, a private US developer, in the next month to create a joint fund of around $400 million for developing residential and retail property in Beijing and Shanghai, McCook said.   He expects annual internal rates of return, after tax, of around 15%.   In India the fund will contribute around $100 million to a $400 million fund for building housing in New Delhi, Mumbai and Bangalore.

McCook said CalPERS would also start funneling funds into Chinese property through its $200 million share of a $350 million fund managed by Japan’s Secured Capital Group and its $400 million investment in a $1 billion fund managed by AETOS Capital.