CalSTRS’ investment committee on Thursday approved a new policy for its $12.7 billion real estate portfolio, including an increase in its core investments to 50% of the portfolio, from 30%.
The $138 billion California State Teachers’ Retirement System’s policy would make 20% of the portfolio value added investments and 30% opportunistic. Previously, 50% of the portfolio had been opportunistic.
The changes follow a drop in value of more than 40% for the West Sacramento-based system’s real estate investments in 2008-2009 fiscal year.
At Thursday’s meeting, John Chiang, California state comptroller, expressed concern about what would happen if there was another plunge in real estate value.
CalSTRS committee officials stressed that board members would be regularly informed of real estate transactions and the staff would institute proper risk controls.
The new policy is part of an effort by CalSTRS to limit its holdings of higher-risk commercial properties to no more than 30% of its portfolio; the current policy allows as much as 70% in such investments.
The system also voted to launch a commodities program as part of an inflation-linked asset class. The category can account for as much as 5% of holdings.
Commodity prices surged 23% last year as the outlook for global economic growth, led by China, the fastest-growing consumer of raw materials, spurred demand for metals, energy and grains. Copper futures have quadrupled in the past eight years, and crude oil has more than doubled. Higher prices have drawn increased interest from hedge fund managers and pension funds.
“Gradually investing in commodities now will give us time to prepare for spikes in inflation,” Carrie Lo, an investment officer at the pension fund, told the committee.
CalSTRS lost 25% in the fiscal year that ended June 30, led by a 43% drop in its real estate holdings and a 28% decline in its private equity investments, according to a statement last year.
Bloomberg contributed to this story.