Calpers, better known as the colossus California pension fund, is proposing to eliminate Real Estate stocks from its property portfolio. The proposal significantly weakens efforts by Real Estate investment trusts to convince institutional investors to increase their Real Estate investment trusts (REIT) holdings.
This proposal was a part of a bigger proposal for a new Real Estate investing strategy posted on the California Public Employees Retirement System website this past Monday. It calls for the pension fund to limit its Real Estate investing to private investment vehicles, not publicly traded stocks. The reason for the change, is that private vehicles are less correlated with the stock market than REITs, according to a consultant memo made public by Calpers too.
Investing in REITs is something Calpers will continue to do as part of its stock-investing strategy, said a spokesman. He further elaborated that it was too soon to say how the pension fund’s overall exposure will change. 7 percent of Calpers’s Real Estate portfolio are the stocks. Reported by the Wall Street Journal, the National Association of Real Estate Investment Trusts responded:
“The Real Estate staff’s recommendation to the Calpers board is inappropriate and ill-advised.”
REITs has been lobbying pension funds and other big investors to increase their REIT exposure, arguing the point that it is more liquid and transparent than private Real Estate investments. In a statement the group said, the net annual return produced by REITs had outperformed that of Calpers Real Estate portfolio over the last 20 years.
Calpers will consider the proposed Real Estate plan at a board meeting on Valentines Day.
The Real Estate private-equity industry as a whole has been hammered over the last five years. Calpers is responding to the tune of more than $10 billion in Real Estate losses it has absorbed over the recent years. REITs, bottomed out after the financial crisis of 2008, but have bounced back nicely since March of 2009 (along with the rest of the stock market). They still remain roughly 30% below their 2007 peak, however.
REITs have been able to refinance assets and make acquisitions more easily than private landlords thanks to their access to the public markets, an advantage they have been trying to capitalize by broadening its investor base.