Investors - APRIL 16, 2013

CalPERS looks to core assets to rebalance real estate portfolio

by Sara Kassabian

The $260.4 billion California Public Employees’ Retirement System (CalPERS) has approved a proposal to change its current real estate investment strategy by extending the investment period by two years at its April 15 meeting.

CalPERS’ real estate investment consultant, Pension Consulting Alliance (PCA), advised the extension, noting the current portfolio is out of compliance with four of the target allocations for July 1, 2013. The key area where the portfolio is out of compliance is in portfolio diversification by risk classification, namely the allocation to core. CalPERS has an actual allocation to core of 43.4 percent and a target between 75 percent and 100 percent of its overall real estate portfolio as of September 2012.

PCA intends to sell opportunistic assets and acquire more core assets to rebalance CalPERS’ real estate portfolio. As of September 2012, CalPERS has approximately 36.2 percent is invested in opportunistic investments with target of 25 percent. CalPERS has approximately 20.4 percent invested into value-added investments.

PCA believes more core opportunities will become available in the next two years, giving CalPERS the opportunity to achieve its strategic goals, and rebalance the real estate portfolio by 2015. PCA expects the portfolio will be closer to its real estate strategy within the next 12 months.

CalPERS has currently invested $21.4 billion, or 8 percent, of its portfolio in real estate. The pension fund has a target allocation to real estate of 9 percent.

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