CalPERS Boosts Its Real Estate Portfolio by 17%

The California Public Employees’ Retirement System, the biggest U.S. pension fund, bought $1 billion of real estate in the first half, increasing its holdings 17%, as competition for properties from real estate investment trusts eased.

The acquisitions are the most by CalPERS in at least four years, during which it overhauled its real estate investment activities. The new investments included everything from apartment complexes to stocks.

CalPERS, which has 1 million members, said it bought properties amid a drop in acquisition activity by real estate investment trusts, or REITs, which are struggling with low stock prices.

“REITs gorged themselves with real estate portfolios two years ago, but in the wake of the stock market’s volatility last year, they’re having to downsize acquisitions staff and prune some of their assets,” said Guy Jaquier, the Sacramento-based fund’s senior investment officer for real estate.

Property acquisitions by REITs in the second quarter fell 80% from the year-earlier period to $2.7 billion, according to the National Assn. of Real Estate Investment Trusts.

In 1997, after several years of lackluster results, CalPERS decided to review its real estate investment strategy. The fund ended up hiring new outside managers for much of its holdings.

Even after the buying, the $157-billion pension fund has just about 4.5%, or $7 billion, of its assets in real estate, below its target of about 6%, or $9.3 billion.

Many pension funds are having difficulty keeping up with their target allocations for real estate because the rapid rise in stock prices in recent years has swollen funds’ assets, enlarging the portion meant to be devoted to properties.