CalPERS officials are taking a hard look at the fund’s $17.3 billion real estate portfolio.
While real estate staffers develop annual plans, there hasn’t been a strategic review since 1995, said spokesman Clark McKinley. In that time, the $229 billion California Public Employees’ Retirement System, Sacramento, has shifted much of its portfolio from mainly domestic, core real estate investments to a global portfolio with 47% of investments in non-core or riskier investments, as well as real estate investment trusts, according to information accompanying the agenda for the March 12 Investment Committee meeting.
“The 1995 review did not anticipate the global shifts that have occurred, the drop in interest rates in the market place, the drop in overall inflation, the flood of capital that has come into real estate, the cap rate compression that occurred in all the real estate sectors, or the great expected returns that have resulted because of all these market force changes,” Mr. McKinley said.
Strategic reviews generally look to periods of 5 to 10 years, he explained. The current review was undertaken in February with a series of roundtables conducted by staff and real estate consultant Pension Consulting Alliance Inc., Portland, Ore., with key investment partners and real estate experts. Topics discussed include reasonable return goals, the best places to invest on a risk-adjusted basis and whether CalPERS should reduce the risk in its portfolio.
The roundtables are scheduled to continue into April. A report on the strategic review and an investment plan is expected to go to CalPERS’ investment committee in August.
