The CalPERS board today approved a policy allowing investments in international pooled real estate funds that have up to 25% of assets in countries excluded from the fund's permissible country list, including China and Eastern European countries. The $194.1 billion California Public Employees' Retirement System, Sacramento, is considering putting $650 million in such pools. Board members approved the policy despite concerns over whether such funds abide by international labor standards, including child labor restrictions. Michael McCook, senior investment officer, said the system could miss out on investment opportunities if there were constraints on such real estate investments.
Separately, CalPERS returned 0.9 percentage points — equivalent to $1.6 billion — over its expected policy return, or return solely from its asset mix, for the five years ended Dec. 31, according to Cost Effectiveness Measurement Inc., a CalPERS consultant. CalPERS' 2.4% policy return lagged the firm's U.S. pension fund median policy return of 3.2%. Performance was dragged down by the -8.6% return for private equity vs. the 4.2% median for other U.S. pension funds.
CalPERS paid less in investment management and administrative costs than other funds, according to CEM. CalPERS paid on average 25 basis points annually for the five years, compared with 32 basis points for its peers. The fund's costs were reduced primarily by its greater use of internal management — 44% for CalPERS vs. 30% for its peers.
The board also approved issuing an RFP for separate pools of active international equity managers, one developed markets and the other emerging markets. The new pools would complement enhanced index international equity and active international equity manager pools approved by the board in April.
No dollar amounts were given and no due date was announced at the meeting today.