CalPERS, CalSTRS Big Investors in New Private Equity and Real Estate Fund

By Jon Peterson

California’s two largest public pension systems have committed $900 million to the latest commingled investment fund of Menlo Park-based GI Partners.

Their collective investment accounts for nearly half of the $1.9 billion GI raised for the fund, which closed earlier this month. CalPERS put in $500 million; CalSTRS agreed to invest $400 million.

The fund, GI’s third, seeks to blend the disciplines of private equity and real estate by investing in property-intensive and asset-backed businesses. The result is an eclectic mix of investments.

Both CalPERS and CalSTRS have invested with GI Partners before. CalPERS put up $500 million for GI’s first fund, 95 percent of the equity that fund raised. The remaining $26.3 million was contributed by CB Richard Ellis Investors LLC. GI originally operated under the name Global Innovation Partners LLC.

The fund, formed after the dot-com bust in the early 2000s, focused on technology related real estate such as data centers and the headquarters of major technology companies. It became a publicly traded entity in November 2004, Digital Realty Investment Trust, and is now headquartered in San Francisco and listed on the New York Stock Exchange under the symbol “DLR.” Sixteen percent of the company’s annual rents come from Silicon Valley holdings, its greatest concentration; 5.2 percent of the company’s rents come from San Francisco real estate.

CalPERS contributed $500 million to GI’s second, $1.45 billion fund. CalSTRS committed $300 million.

Representative ventures for the third fund so far include Ladder Capital Finance, a New York company created in November 2008 to exploit opportunity in the commercial real estate market and what Ladder believes is the long-term structural change in commercial real estate finance. GI was a founding investor in the company, which began with $1 billion in committed equity and debt, according to a statement from Ladder Capital.

The GI fund also has invested in Care Aspirations, a British provider of specialist services for severe learning disabilities, and in September it bought a 75 percent interest for $116 million in the FlatIron Crossing Mall in Bloomfield, Colo. The 1.4 million square-foot center is anchored by Nordstrom, Macy’s, Dillard’s and Dick’s Sporting Goods and was built in 2000. Macerich bought the property in 2002, and has said it sold the interest to raise cash. The mall is 97 percent occupied and in 2008 recorded tenant sales exceeding $440 a square foot.

CalPERS anticipates achieving a net internal rate of return of 20 percent on its investment in GI’s third fund.

CalSTRS considers the GI Partners III fund a real estate investment. Through the first quarter of this year, GI Partners had taken down $17.9 of CalSTRS’ commitment. The pension fund values its investment to date at $10.3 million.

Some investors have contributed capital to GI Partners for the first time through fund III. The Florida State Board of Administration committed $100 million and the Teachers’ Retirement System for the State of Illinois committed $50 million. GI Partners has taken down $8.6 million of the commitment from the State of Florida through the end of June. The pension fund placed a value on the investment of $6.6 million.

GI Partners declined comment for this story.

Sharon Simonson contributed to this report.

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