The L.A. Times reports that the value of the pension fund’s
real estate holdings fell 30% in the quarter that ended September 30 compared
with the previous quarter, according to a consultant for system. Year over
year, it dropped 48.7%.
A memo from the fund’s adviser, Pension Consulting
Alliance Inc. of Encino, said the system is reviewing its relationships with
its individual investments and with its individual investment managers. “A
number of managers have been or are in the process of being terminated as their
performance and judgment proved to be well below expectations,” the memo
said, according to the Times.
CalPERS fired its
real estate adviser, McFarlane Partners, in October.
The news report said losses on residential and commercial properties reduced
the value of CalPERS’ real estate portfolio to $13.6 billion, eliminating six
years’ worth of gains. Real estate investments have underperformed all the
fund’s benchmarks. The 4.4% average yearly return for 10 years was
substantially below a benchmark based on other investors’ results of 8.9%,
Pension Consulting Alliance said.
CalPERS’ real estate investments were hit hard in June 2008 by a $1-billion
writeoff for the bankrupt Newhall Ranch residential project north of Los
Angeles, according to the Times. An additional $500 million put into a
partnership in the Stuyvesant Town-Peter Cooper Village apartment complex in
New York is threatened by a collapse of the residential property market and the
prospect of bankruptcy by CalPERS’ partners, Blackrock Inc. and Tishman Speyer
Properties (see Pension-Backed NYC Investment could be in Foreclosure by 2010).
The pension fund, which provides retirement benefits for 1.6 million former state and local government workers, says it needs an average return of 7.75% a year to meet its long-term obligations.