CalPERS CIO proud of improving real estate portfolio

When CIO Theodore "Ted" Eliopoulos leaves the California Public Employees' Retirement System at the end of this year, he will be passing a huge project to his successor, creating a separate entity that would make direct private equity and late-stage venture capital investments.

Mr. Eliopoulos, who announced on May 14 that he would be leaving the $355.9 billion pension plan, said he will have plenty of time during the year to reflect on his tenure at CalPERS, what he could have done better and what he would like to change.

But in a telephone interview on May 17, he said that turning around the real estate portfolio after the global financial crisis was his greatest accomplishment.

Mr. Eliopoulos began working at Sacramento-based CalPERS in 2007 as a senior investment officer for the real estate division and the real assets unit — just in time for the global financial crisis. He also worked in the real estate and real assets investment team when the national pay-to-play scandal rocked CalPERS in 2009.

He was named interim chief investment officer in June 2013, taking over the position from the late Joe Dear. In September 2014, he was named to the position permanently.

In the 12 years he has worked at CalPERS, he said, the pension fund's staff and board have done "an amazing job … and has been rightly focused on continuous improvement with governance structure and building an investment office with a very strong decision-making process in place with people with the right skills."

He acknowledged it is never a good time to leave the type of position he now holds, but said the new private equity direct investment corporation is expected to last decades.

However, this new private equity strategy involving an outside corporation is not a done deal.

The board has not yet created a separate corporate entity, several board members noted. The board in closed session gave Mr. Eliopoulos and the investment staff the authority to begin studying what this structure might look like and start talking about the models with the financial industry, board member Richard Costigan said. The board directed Mr. Eliopoulos to bring the information back to the board to consider further steps, Mr. Costigan said.

"If approved it will have a 40- to 50-year lifetime ... It will also need the leadership of all of CalPERS and it will see a succession of CIOs through its lifetime," Mr. Eliopoulos said.

When asked to describe his biggest accomplishment, Mr. Eliopoulos said he "is enormously proud" of restructuring CalPERS' $30.5 billion real estate portfolio after the financial crisis.

In 2012, for example, CalPERS terminated more than 20 real estate managers, reducing the total to 60. The goal at the time was to have 20 to 30 real estate managers. As of June 30, CalPERS had 21 managers, according to its latest real asset report released in November.

​ Mr. Eliopoulos and his real estate team began, also in 2012, aggressively moving the pension fund's then-$21 billion global real estate portfolio into core real estate. Some 77% of CalPERS' real estate portfolio was in core real estate as of June 30, according to its latest annual real asset review.

The portfolio had greatly underperformed after the financial crisis, in part, because it had been overweight in opportunistic and value-added real estate and underweight in core.

Even so, the real estate portfolio has underperformed its benchmark for all periods except the one year as of June 30, the real asset report shows. It earned a net 7.6%, above its 7.4% benchmark. CalPERS' real estate portfolio returned 10.8%, compared to the 11.1% benchmark for five years. For the 10 years, it returned -1.3%, underperforming the 7.8% benchmark; and 6.8% vs 10.3% for the 20 years ended June 30.

Still, Mr. Eliopoulos said he is "not gone yet," and that he will be even prouder if the transition to his successor goes seamlessly.