CalPERS’ real estate portfolio rises dramatically

Despite still reporting a negative 10.8% return for the second quarter, the $221bn pension said its real estate performance had done much better than expected with intial estimates predicting a devastating -37.1% return.

The California Public Employees’ Retirement System’s real estate portfolio saw a dramatic increase in value at the end of the second quarter, despite still reporting a -10.76 percent return.

After predicting a -37.1 percent return for the asset class in July, CalPERS this week revised its forecasts revealing instead that, as of the end of June, real estate had returned a much lower than expected loss.

The pension had published preliminary performance data on its private equity and real estate portfolios  based on values as of 31 March, 2010. The new, final values are as of 30 June.

Even [real estate]improved dramatically over what we reported in July.

Joseph Dear, CalPERS
chief investment officer

Private equity increased in value by 23.88 percent in fiscal year 2009/2010, which ended 30 June. The valuation increases in CalPERS’ private equity portfolio were a huge reversal from the previous year, when private equity produced a negative 24.6 percent performance. But the updated numbers came down slightly from the estimated preliminary report in July, which pegged private equity at a 31 percent return.

Along with private equity, commodities, infrastructure, forestland and inflation-linked bonds portfolio increased in value by 8.7 percent over the fiscal year, CalPERS said.

“These figures confirm our initial assessment a few months ago that we were in recovery mode with the opportunity to capture future returns because of our long-term investment horizon,” Joseph Dear, CalPERS chief investment officer, said in a statement.

CalPERS has gained “more than $40 billion since March 2009”, Dear said. “We also beat our benchmark of 12.95 percent and eclipsed returns targets for every asset class except real estate. But even that asset class improved dramatically over what we reported in July.”

CalPERS also saved about $300 million in fee reductions with external managers, has eliminated low performing funds, which includes mostly hedge funds.