Calpers to invest $530m in China

Updated: 2012-09-21 11:12

By Chen Jia in San Francisco (China Daily)

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The pension fund for California's government workers recently pledged to invest $530 million in two new real estate funds focused on China.

The funds are run by ARA Asset Management, an Asian firm that specializes in management of publicly traded real estate investment trusts as well as private real estate funds.

"We believe foreign investment in the Chinese real estate market will continue to grow over time, notwithstanding near-term challenges and some price volatility along the way," Moses Song, CEO of ARA's principal investments division, told China Daily last week.

The California Public Employees' Retirement System, or Calpers, has high performance standards for its managers, so ARA is "certainly expected to deliver results", he said.

With $238 billion in assets, Calpers is the biggest public pension fund in the United States. It administers retirement benefits for 1.6 million state, municipal and public-school workers and retirees and their families.

Calpers said it will invest $480 million in the ARA-managed Long Term Hold Fund and $50 million in ARA's Dragon Fund II.

Calpers invested $500 million in ARA Dragon Fund I in 2007, it said.

The Long Term Hold Fund will target investments in high-quality office buildings in central business districts and shopping malls in densely populated suburbs of Hong Kong and first- and second-tier Chinese cities.

Dragon Fund II will be focused on retail, office and residential properties in major Chinese cities, Hong Kong, Singapore and Malaysia.

"We observe a near-term trend focusing on retail-oriented strategies, but we believe all major sectors -office, retail, logistics, hospitality and even residential, despite current headwinds - will continue to benefit from China's economic growth over time," Song said.

"Income growth and urbanization remain the key themes for growth in China," said Joe Dear, Calpers' chief investment officer.

"China's office and retail sectors offer stable rental income and potential for capital value growth."

Its first investment with ARA earned Calpers a 19.2 percent return for the fiscal year ended March 31 and an average annual 8.4 percent return over the three years through that date.

Song said that government measures to cool down China's once-overheated real estate sector will continue at the national level and will generally impede foreign investment.

"Some local governments and municipalities in China continue to welcome foreign investment to help support local economies, although any incentives, such as local tax breaks, are granted on a case-by-case basis," he said.

According to the National Bureau of Statistics, of the 5.08 trillion yuan ($800 billion) invested in Chinese real estate between January and July, only 22.8 billion yuan was from foreign funds, down 54.3 percent from the same period in 2011.

The monthly average of foreign-fund investment in Chinese real estate through this year's first seven months was 3.26 billion yuan. That compares to 6.78 billion yuan from Jan 1 to July 31, 2011, and 6.63 billion yuan during the same period of 2010.