CalPERS' investment committee on Feb. 14 approved a new real estate plan that will shift the majority of its $15.4 billion in real estate assets to the “core” category.
Under the $226.5 billion California Public Employees' Retirement System's new plan, the amount of core assets will increase to 75% of the real estate portfolio from 48.9%.
Opportunistic real estate will be reduced to no more than 25% of the portfolio from 51.1%; that category will be combined with the value-added category.
The shift is in response to massive losses the Sacramento-based system suffered in its real estate portfolio following the financial crisis.
The new core portfolio will be divided into three units: basic portfolio, which provides stable cash flows and will have a 75% target range; domestic tactical, 15%; and international tactical, 10%.
The changes won't come quickly. Ted Eliopoulos, CalPERS' senior investment officer for real estate, said the real estate portfolio will be split into its $6.8 billion legacy portfolio and the new real estate portfolio, estimated at $8.6 billion. The legacy portfolio — the real estate assets remaining following the changes — will be sold over the next five to seven years. This includes residential properties, land, real estate investment trusts and speculative properties.
Mr. Eliopoulos was questioned by board members as to how long it would take to sell the legacy portfolio. He conceded portions could be left after seven years. “We do not intend to sell it at fire-sale prices,” he said.