CalPERS Plans to Increase Capital Allocations to Bay Area Firms

AGI’s 900 Folsom in San Francisco
AGI’s 900 Folsom in San Francisco
AGI’s 900 Folsom in San Francisco

By Jon Peterson

California Public Employees Retirement System has plans to transform its emerging managers into a more typical established separate account relationship with a significant increase in the capital awarded to each manager.

Three of these emerging managers have roots in the San Francisco Bay Area. They are AGI Capital, Sack Properties and Rubicon Point Partners.

The pension fund will be elaborating this move at its board meeting next week that starts on Monday June 15th. CalPERS stated in a board meeting document the objectives with this move is to generate appropriate risk-adjusted investment returns by investing with emerging managers who had had success with their initial allocations and to provide a path of growth and opportunity for emerging managers to build their firms to a size large enough to compete for entry into its pool of larger established investment managers.

The initial allocations to the emerging managers ranged from $50 million to $100 million. The plan for the future would be to allocate these firms a new allocation in the range of $200 million to $500 million per firm. The total allocation to the managers would come in at $2 billion over the next five years.

“We are expecting to be one of the firms that would be moved to a more established manager relationship. Our relationship with CalPERS has been a good one for both parties,” says Eric Tao, president of AGI Capital.

The company’s investment strategy so far with the relationship has been to find sites and build urban infill apartment complexes in San Francisco. “With the increased capital we would expand our horizons to include the 9-county San Francisco Bay Area,” said Tao.

If the emerging managers become established managers, they will change how they work with CalPERS. Up to now, the emerging managers had no investment discretion. This meant that the manager would need to get approval from the pension fund before a final decision could be made on an investment. The emerging managers also worked with a mentoring manager. Once they become an established manager, they will have investment discretion with oversight directly from CalPERS staff.

AGI as its relationship stands now works with Los Angeles-based The Resmark Companies as its mentoring manager.

Sack Properties and Rubicon Point Partners are both part of the Canyon Catalyst Fund that is managed by Los Angeles-based Canyon Capital Realty Advisors. There are two other managers in the fund. These are Los Angeles-based Pacshore Partners and Paragon Commercial Group. All of these firms have a mandate to invest in real estate in California.

CalPERS is looking at on a long-range basis to reduce the number of real estate managers with which it works. At new next week’s board meeting, the pension fund will be discussing the idea to trim its real estate managers from 51 down to 15. The goal with this is to cut the total amount of fees it pays to outside managers.