The California Public Employees’ Retirement System has more than tripled the size of a standing pool of real-estate consultants from 10 to 32, though it has not increased its budget to pay for the services.
San Francisco’s Bard Consulting, formed in 2001, has been included in the consultant pool. The company, which expects to have two staff members working on the CalPERS account, has been a CalPERS consultant since 2005. It specializes in reports and market studies, real-estate consulting and assistance in agreement negotiations. San Francisco’s Callan & Associates, which specializes in market studies and consulting, also has been included in the pool. It will dedicate eight staff members to CalPERS. Founded in 1973, Callan has been a CalPERS consultant since 2007.
The consultants in the so-called “spring-fed pool,” created in 2005, provide a variety of services to the pension fund including auditing, accounting, request-for-proposal development and portfolio-leverage evaluation. The consultants are essentially on-call at all times for CalPERS work.
Meanwhile, the pension fund board also has agreed to increase the fee for real-estate advisor Pension Consulting Alliance. The Portland, Ore., consultant charges CalPERS $55,000 a month now. The plan is to increase that to $95,000 a month.
“PCA justified the requested fee increase, citing the need to add staff, attend more real estate meetings, new policy development and taking on considerably more work in connection with the restructuring of the real-estate portfolio,” said CalPERS spokesperson Clark McKinley in an email message.
On an annual basis the fee to PCA would go from $660,000 to $1.14 million. The fee increase is expected to become effective July 1 of this year.
The budget allocation for the real estate spring-fed consultants is $3.4 million a year. However, being selected for the pool does not guarantee that a company will ever be given any business. Typically the pension fund picks a company from its pool based on the project at hand and a match with a firm’s expertise.
Going forward, board members are to receive quarterly reports itemizing which firms are engaged, for what tasks and the anticipated expense, according to a CalPERS spokesman. Some board members have expressed concern about spending on consultant fees and have sought measures to assess the value of the work the consultants provide.
The new contracts with the pension fund become effective July 1 and last for a maximum of five years.
The initial RFP for the spring-fed pool was issued in January. Forty-two firms responded by the March 18 deadline.
Ten of the 32 firms selected for the pool were firms already engaged by CalPERS. Besides Bard and Callan, these include Cleveland-based Courtland Partners, Pension Consulting Alliance in Portland, The Situs Co. in Houston and Los Angeles-based Crosswater Realty Advisors.
Some of the spring-fed consultants also are real estate managers that sponsor their own real estate investment funds or have separate account relationships with pension funds around the country. These include firms like New York City-based ING Clarion Partners, Los Angeles-based Lowe Enterprises Investment Management and Chicago-based The Tuckerman Group.