CalPERS Says Fund It Seeded Yields 31% IRR

The California Public Employees’ Retirement System says it generated a 31 percent net IRR on its investment in GI Partners Fund I, a real estate and private equity firm that the pension fund seeded in 2001 and that is expected to be in the market shortly with a new fund.

CalPERS committed $500 million to GI Partners for its inaugural fund, as part of a joint initiative between the pension’s real estate and private equity programs to invest in technology-related assets. When the fund closed earlier this year, after exiting its last investment, CalPERS was able to report a profit of approximately $695 million, the pension announced in December. That works out to a 2.4x return.

“These significant returns are a credit to GI Partners and CalPERS investment professionals’ performance over the past 10 years,” Joseph Dear, CalPERS’s chief investment officer, said in a press release announcing the results. “We have a long investing horizon, and the fund’s success is testimony to our commitment to an investment strategy that seeks superior risk-adjusted returns across all asset classes.”

Although CalPERS categorizes GI Partners as a real estate manager, the Menlo Park, Calif.-based firm has diversified into underperforming assets and companies in a variety of fields. As Buyouts has previously reported, the firm acquired two dozen data centers after the dot-com and telecom busts, paying $250 million, or 70 percent of replacement cost. The firm earned nearly 4x after the holdings, rolled up as Digital Realty Trust, went public on the New York Stock Exchange and the firm exited in 2007.

CalPERS has continued to invest with GI Partners. The pension reported a 40.5 percent IRR, after fees, on its 2008 commitment to GI Partners Fund III LP, and an 8.0 percent return on its 2005 commitment to GI Partners Fund II LP, as of Dec. 31, 2010. And in December 2010, the pension fund gave GI Partners the assignment to manage its $1.9 billion portfolio of North American industrial real estate, replacing LaSalle Investment Management.

GI Partners has won commitments as well from other big investors, including California State Teachers’ Retirement System, Oregon State Treasury, the Teachers’ Retirement System of the State of Illinois and the New York City Employee Retirement System. The firm has 54 investment pros in the United States and Europe.

GI Partners, whose current fund is 70 percent invested, is expected soon to begin fundraising for a fourth fund earmarked for North America, CalPERS said.