Issues Update
The Other Side to Today’s Pensions & Investments Story on CalPERS Real Estate
December 28, 2009
Pensions & Investments today reported on losses in the CalPERS real estate portfolio. The story reported lessons that CalPERS has learned from the unprecedented real estate devaluation that has affected all major investors. P&I also mentioned strong steps that CalPERS is taking to protect the portfolio from future losses. Those measures entail a systematic restructuring of the portfolio to reduce risk and borrowing, independent appraisals, reevaluation of manager relationships, and tightened oversight of real estate investments.
But the story failed to acknowledge the leadership role of the current senior investment officer for real estate and chief investment officer —two people who were not with CalPERS when the vast majority of major real estate commitments were made at the market’s peak in 2005 and 2006. P&I also did not say that despite the portfolio losses, real estate investments earned an average return of 4.4 percent per year over the 10 years ending June 30, 2009. The story said the fund “did not begin an external due-diligence process until January 2008.” In fact, the new senior investment officer who joined CalPERS in January 2007 soon directed a full-scale reevaluation of the real estate portfolio, a time-consuming process over many months that is continuing.
Real estate has been a strong diversifier of the pension fund’s investments. The CalPERS Board is committed to real estate as a major asset class, and the depressed market is presenting the Fund compelling buying opportunities for eventual market recovery and growth. Long-term, we anticipate strong performance from real estate.
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