The California Public Employees’ Retirement System (CalPERS) announced today that it has completed an assessment of its housing investment portfolio and is in the process of structuring its assets for future performance.
In reports to the System’s Investment Committee, CalPERS Investments staff reported the market value of its housing assets stood at $6.1 billion as of June 30, 2008, down from its original cost of $9.3 billion. This is based on evaluations performed by independent appraisers of assets contained within 20 partnerships as of March 31, 2008.
This $3.2 billion reduction represents a 35 percent decline in market value of the CalPERS housing portfolio.
The impact on performance was also reported. For the one-year period, the housing decline put the real estate portfolio into negative territory. However, current gains in the 12-month period through June 30, 2008 have offset that decline, with overall real estate making a positive return for the three-year, five-year, and since inception periods.
“This portfolio reflects the realities of today’s market and accurately depicts readjustments of price and risk,” said George Diehr, Chair of the Investment Committee.
“We intend to keep the vast majority of our assets,” he added, “and our long term horizon enables us to be patient. If the market values increase over time, we can expect cash flow back and a return on our capital.”
The work done so far includes the following:
CalPERS valued the existing properties, analyzed the capital structure of the program, restructured certain outstanding debt arrangements, and reduced leverage where appropriate. The Investment staff was aided in its assessment by LePlastrier Development Consulting and Morgan Stanley.
CalPERS housing partners include Hearthstone, IHP Capital Partners, McFarlane/Weyerhaeuser Partners, Newland Capital Advisors, Resmark Equity Advisors, and Wells Fargo Reality Advisors.
Independently, the CalPERS Board and staff began in January of 2007 to enhance the entire real estate program’s policies, processes and protocols to ensure they are appropriate for the economic condition going forward, said Anne Stausboll, Interim Chief Investment Officer. These changes will also benefit the housing investment program going forward.
“We have been and will continue to work with the Board on enhancing our policies for investments in real estate,” said Anne Stausboll, Interim Chief Investment Officer. “The Investment Committee has approved policy and procedure enhancements that ensure that the Board’s consultant, an independent fiduciary and a Real Estate Staff Investment Review Committee are consulted on each investment proposal. And we are working with the Investment Policy Subcommittee on changes to the housing policy and the overall real estate policy to guide us in the future.”
CalPERS is the nation’s largest public pension fund with more than $189 billion in assets. It provides retirement and health benefits for approximately 1.6 million public employees, retirees and their families. For more on CalPERS, visit www.calpers.ca.gov.