(June 3, 2010) — The investment committee of the $138 billion California State Teachers’ Retirement System (CalSTRS) is expected to vote on a revised policy for its $12.7 billion real estate allocation.
CalPERS’ decision to revise its real estate portfolio comes after the fund suffered huge losses in the 2008 to 2009 fiscal year as the value of its real estate investments fell more than 40%.
According to meeting agenda, the Investment Committee has been reviewing and making major changes to the fund’s real estate policy since September 2009. The new allocation would encompass an increase in its core investments to 50% of the portfolio from the current 30%. The fund would also put a cap on its holdings of higher-risk commercial properties to no more than 30% of its portfolio — the current policy allows as much as 70% in such investments. The proposed changes would additionally split its tactical allocations to a value added, at 20% of the portfolio, and opportunistic, at 30%, Pensions & Investments reported.
If approved, the next phase of the plan would take three to five years to implement and would include, 1) Categorizing the portfolio into the new definitions of core, value add, and opportunistic; 2) Deleveraging the portfolio to the recommended leverage ratios in the policy; 3) Stabilizing and/or deleveraging specific existing assets and subsequently shifting those investments into lower risk categories (typically value add assets shifting to core).
Separately, the US public pension fund is set to vote today on a long-range strategic allocation to commodities to hedge against the risk of rising inflation. The fund will add bulk goods such as oil, sugar and copper to its $138.5 billion portfolio of equities, bonds, real estate and private equity.
The move reflects a growing investor desire for raw materials as US federal commodities regulators evaluate the merits of imposing limits on institutional investors’ exposure to raw material markets. CalSTRS’ pull toward commodities follows the investment of the $198.7 billion California Public Employees’ Retirement System (CalPERS), in the asset class.