Dr. Ben Meng of CalPERS
The second biggest pension fund in the US has $257 billion to invest and is looking for more deals in China. However, even a giant fund manager that has been investing in China for several years realises that good deals are getting harder to find in the country’s real estate market.
To deal with the more challenging market, Ben Meng, who heads asset allocation efforts for CalPERS said that the fund manager intends to widen the scope of its target deals as it searches for profitable investments in China.
“We have a great manager, but probably we have given them too narrow of a mandate,” Meng told an audience of fund managers and other real estate investment professionals at the Private Equity Real Conference in Shanghai on Thursday. “We have been strictly looking for A+ buildings in A+ locations,” he explained.
The fund manager currently has about 10 percent of its real estate portfolio in emerging markets, with the bulk of that being in China. CalPERS real estate investments make up nearly half of its overall portfolio.
Meng indicated that the public fund has had very positive results from its Chinese real estate investments to date, and it remains “very bullish about the growth story in China.”
Widening Target Investment Range
Maintaining those positive returns seems to be getting more challenging, however, as competition for quality assets increases. In explaining CalPERS recent experience in attempting to acquire top grade assets in prime locations in China, Meng said, “We constantly got outbid by the land kings, the sovereign wealth funds or the other domestic competitors.”
Rather than exit the arena, however, CalPERS, which has invested heavily in China through funds managed by Li Ka-shing’s ARA Asset Management, is looking harder for bargains.
Explaining the changes in asset evaluation criteria by CalPERS Meng said, “So now we are looking for A- buildings in an A+ location, so with some TLC that we could turn into an A+ building in an A+ location. Or for A+ buildings in A- location with the hope that with the growth in Shanghai or Beijing that the A- location will grow into an A+ location maybe ten or 20 years later.”
Giant US Fund Teams Up with Asia’s Richest Man
CalPERS, which does not maintain an office in China, in 2012 invested $480 million into ARA’s Long Term Hold Fund and another $50 million in ARA’s Asia Dragon Fund II. The public fund manager also invested in ARA funds in 2007 and in total has devoted 0.5 percent of its assets invested to ARA managed vehicles.
Meng indicated that CalPERS values working with ARA because the fund manager invests with them, rather than selling off assets that it already owns. ARA Asset Management is one of the largest companies belonging to Li Ka-shing, who is estimated to be Asia’s richest man.
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