Calpers Cuts Investment Targets. New Private Equity Funds Launched

Calpers Cuts Investment Targets, Greatly Impacting Local Governments 

With the declaration that California’s roads are “in dire shape” and the evacuation of 180,000 people due to the Oroville Dam emergency, it’d seem like the state can’t catch a break. Especially when you consider the fact that California’s state public pension system, Calpers, recently voted to lower its projected future investment returns.

Calpers, the $300 billion institution that manages 1.7 million current and future retirees’ investments, has cut the future returns projection down from 7.5 percent to 7 percent; the reduction will be implemented over the next three years. The trustees acknowledged the importance of the decision, and the consequences it may have on municipal governments— with the returns covering less of retirees’ pensions, local governments will have to pay more. Vallejo, Stockton, and San Bernardino’s bankruptcies can be, in part, attributed to pension payments to Calpers.

Critics of Calpers claim that the system makes it extremely difficult to leave, with judge Christopher Klein in Stockton’s bankruptcy case calling Calpers “a bully”. In November of 2016, Calpers cut California town Loyalton’s four municipal retirees pensions by 60 percent. Other critics argue that Calpers returns are too high, and should use the returns of Treasury securities as a base; 10-year bonds have returns at approximately 2.5 percent.

While Calpers may be cutting its targets, we’ve compiled a list of funds that have launched  that accept both private and institutional investments. We’ve identified that Jan 2016 has seen $370 M in new funds launched (compared to $265 M in Jan 2017), with $100 M funded in 2017 vs $64 M in 2016. Therefore, the funding rate for newly launched funds stays relatively the same at around 26%.

Here are the most notable private equity funds launched:

Chestnut Development Partners

Chestnut Development Partners II, LP is the second fund from Chestnut Real Estate; the first is aptly named Chestnut Development Partners, LP. Chestnut Development focuses on primary and secondary U.S. markets, and seeks to invest $1 million to $5 million in retail and healthcare properties. It’s typical hold period ranges from 3-7 years. Anchor Health Properties, a JV partner of Chestnut Development, is expected to grow to $50 million in equity.

MLG Companies

MLG Private Fund III is the newest addition to the MLG Private Funds series; the funds aim to acquire geographically diverse commercial real estate assets, ranging from $5-55 million. MLG has an 8% cumulative preferred return, targeted IRR returns of 13-15% over a 5 year period, and has the potential to achieve $150 million. The third private fund places emphasis on multi-family, industrial, and office acquisitions.

Bristol Group

Bristol Group invests in assets that are in need of recapitalization, re-tenanting, or repositioning. The fund also looks into fee simple or leasehold interests, joint ventures, options, and sub-performing and nonperforming loans. Apartments, office, and retail are also possible assets. The fund aims for an investment size of $10 million to $1 billion.

Sponsor Offering Deal Size
Chestnut Development Partners Chestnut Healthcare Partners, L.P. $50,000,000
Virtua Partners Virtua High Growth Fund III, LLC $100,000,000
AEI Capital Corporation AEI Net Lease Income Fund 36 LP $200,000,000
 MLG Companies MLG Private Fund III LLC $100,000,000
Centennial Holding Company Centennial Real Estate Fund V, LP $300,000,000
LEDIC Realty Company LEDIC Realty Company, LLC $50,000,000
Pathfinder Partners  Pathfinder Total Return Fund III LLC $100,000,000
Brookwood Financial Partners Brookwood US Real Estate Offshore Fund II, LP $125,000,000
Bristol Group Bristol Value III, LP $250,000,000

Need to look up more private equity investors? Start here.