The California Public Employees' Retirement System, the largest state-run U.S. public pension, saw the value of first-quarter real estate holdings decline 30 percent and is terminating contracts with some investment firms behind the loss, a consultant for the fund said.
The pension fund, with $201.9 billion in assets, will report that its real estate portfolio declined by 30.1 percent during the quarter that ended Sept. 30 and by 48.7 percent from a year earlier, according to a report to be presented to the Investment Committee Dec. 14 by its consultant, Los Angeles- based Pension Consulting Alliance Inc.
Calpers, as the fund is known, said in November that it was reviewing its investments with BlackRock Inc. after losses stemming from Manhattan's Stuyvesant Town-Peter Cooper Village apartment complex. In October, the fund agreed to sever ties with real estate adviser MacFarlane Partners and is reviewing contracts with all managers. Calpers has drawn criticism as investments produced losses of 23 percent in the year ended June, erasing six years of gains.
"Information gathered through this review process has yielded important lessons learned and is proving very valuable to the restructuring of the portfolio," Pension Consulting Alliance said in the two-page report. "Furthermore, 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."
Calpers had about $13.6 billion invested in real estate as of Sept. 30, according to the fund.
Real Estate
New York-based BlackRock's real estate unit teamed up with New York-based Tishman Speyer Properties LP to buy the Manhattan developments for $5.4 billion in 2006, a deal that included $500 million of Calpers's money. BlackRock has since written down its investment to zero as property prices plunged, attempts to refinance debt were hobbled by the credit freeze and a move to increase rents was blocked by tenants. BlackRock and Tishman are on the verge of defaulting on $3 billion in loans against the 80-acre complex, Manhattan's largest residential community.
San Francisco-based MacFarlane Partners, which helped Calpers invest in affordable housing through a joint venture, California Urban Investment Partners LLC, resigned as manager of that partnership in October.
Urban Program
Calpers put more than $1 billion in the urban program. MacFarlane also helped the pension fund pay $970 million in cash and property to Lennar Corp. for a stake in LandSource Communities Development LLC in January 2007. The 15,000-acre (6,000-hectare) tract north of Los Angeles, known as Newhall Ranch, filed for Chapter 11 bankruptcy protection in June 2008 after failing to restructure debt.
"The decline reflects the impacts of the market downturn experienced by many real estate investors, including Calpers," said Calpers spokesman Brad Pacheco. "We are taking a proactive approach to reposition our portfolio for long-term growth, including reducing leverage."
Calpers overall earned 8.6 percent during its first quarter, lead by an 18 percent gain in equities. Its fixed income and bond holdings rose by 8.9 percent, while its alternative investments such as private equity grew by 7 percent during the quarter.
