The $537B California Public Employees’ Retirement System (CalPERS) is steering $1.4B to four real estate funds, as it continues building a defensive and resilient portfolio that can provide consistent yields.
CalPERS has historically focused almost entirely on core investments, said Sarah Corr, the pension plan’s managing investment director for real assets, during a recent investment meeting. The plan has benefited from the strategy and outperformed its benchmarks, despite the dramatic write downs experienced across the real estate market over the last few years, she said, adding the core portfolio is largely stabilized.
As of Mar. 31, the core portfolio returned -0.9%, ahead of its one-year benchmark (-2.1%). Its three-year return (-3.1%) was in line with its benchmark, while the five- (2.4%) and 10-year (6.6%) returns surpassed their respective benchmarks for the periods (2.0% and 4.9%).
The pension fund is continuing to add core properties to the fold, with three of the four commitments earmarked for this segment, noted the meeting materials. CalPERS has committed up to $500M to TechCore, a core real estate investment vehicle that is managed by GI Partners. Founded in 2012, the fund is comprised of technology-advantaged properties in the U.S., including data centers, carrier hotels, specialized technology corporate campuses, “always on” facilities, and life sciences properties located in primary markets.
CalPERS also committed $440M to IDR Investment Management’s Core Property Index Fund, which includes 3,300 properties across the 35 largest U.S. markets, with properties ranging from industrial to rental apartments, commercial office and retail to specialty use. It also committed $70M to First Washington Realty’s Global Retail Investors Fund, a core real estate fund that focuses on retail properties.
As valuations stabilize, the repricing of real estate assets is generating more attractive yields, which Corr pointed out is driving renewed investor interest. “Investors are adjusting to the-higher-rate interest environment, and many are encouraged by stabilizing property fundamentals and renewed growth in net operating income, which helps to offset higher capital costs. Distress and misaligned capital structures are also surfacing, creating targeted opportunities for well capitalized investors like CalPERS, who can act decisively and with long term conviction”
Corr added that real estate has been challenged by major dislocation events, such as the global financial crisis, pandemic and tightening of interest-rate policy. But, she said a closer look at CalPERS’ core portfolio, which makes up nearly 90% of the real estate portfolio, will show that, on a relative basis, it has matched or exceeded the policy benchmark over the mid- to long-term.
As of Mar. 31, 2025, the real estate portfolio’s one-year return stood at -1.9% above the benchmark (-2.1%). Over three- and five-year periods, it returned -3.7% and 1.6%, falling short of its benchmarks for the periods (-3.1% and 2.0%, respectively). Over a 10-year period, the portfolio returned 4.9%, squarely hitting its benchmark.
“As our focus is on long-term results, the core portfolio outperformed its benchmark by 170 basis points over that 10-year term and continues to demonstrate resilience during market disruptions, with occupancy rates maintaining over 90% and income yielding 4% on average.”
During the meeting, Carr noted the team is seeking to gradually move up the risk curve and has started selectively making commitments to non-core managers and co-investment accounts to enhance returns. “Given current market conditions, we are looking for opportunities where CalPERS can provide solutions to investors with liquidity or balance sheet concerns.”
Notably, the pension fund also committed an additional $400M to Nuveen Real Estate’s U.S. Affordable Housing Fund, which is part of the manager’s U.S. impact series that is designed for investors seeking to generate positive social and environmental impact alongside a financial return.
This is the second allocation from CalPERS to a separately managed account focused on affordable housing, following its commitment in June 2024 of a $100M investment in the Nuveen Real Estate U.S. Affordable Housing Strategy, noted a press release by Nuveen.
