SACRAMENTO-The California Public Employees Retirement System is considering a significant increase in international real estate investments. On the advice of PCA Real Estate Advisors, the staff of CalPERS Investment Committee is recommending that its international real estate allocation be bumped from 20% of its total real estate allocation to 50%, which in dollars would take it from approximately $4 billion to approximately $10 billion.

The reasoning behind the increased allocation is two-fold. First, PCA and Investment Committee staff agree that international fundamentals appear more attractive compared to the US on a relative basis and, two, they agree that CalPERS portfolio should better reflect the fact that the US represents only 20% of the global GDP and 30% of the global real estate market.

As part of the strategy, the structure of its real estate portfolio would be simplified into three basic categories–Core, Value-Add and Opportunistic–each of which would have US and International subcategories that would be further broken down by property type. Currently, there is a separate International category.

Additionally, PCA and Investment Committee staff recommend that the International investing be done through larger separate accounts with fewer managers; that staff become more specialized; and that CalPERS staff new offices in London and Asia to better physically manage the expansion.

The would-be changes are part of a strategic review of the real estate program that PCA and Investment Committee staff have been working on over the past several months. A CalPERS spokesman tells the potential changes will be up for approval by the Investment Committee in September. If approved, implementation of the new strategy could begin next spring, with the new benchmarks taking effect this time next year.

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