Pension Portfolios Fell by 24% Last Year
Real Estate Alert's annual review of public pension
systems has documented just how big a toll the
economic downturn took last year: The 50 largest
plans saw their real estate portfolios plunge in value
by a whopping 24% on average.
The decline is only the second in the review's 11-
year history. And it was far higher than the previous
drop of 6% in 2001. The portfolios plummeted in
value by $39.3 billion, to $127.6 billion (see tables on
California State Teachers and Calpers, the two
largest pensions, suffered the biggest declines by
dollar amount. CalSTRS' portfolio dropped by $7.5
billion, or 37%, to $12.7 billion. Calpers' portfolio fell
$7.2 billion, or 34%, to $13.7 billion. Overall, values
declined at 44 of the 50 systems, with 12 falling by at
least $1 billion. By contrast, only 16 pensions posted
declines in 2008, with two experiencing losses of
more than $1 billion.
Against that backdrop, it's little surprise that for the
second straight year investors pulled back from
commitments to new funds, separate accounts, joint
ventures and wholly owned properties. Pledges
plummeted to $5.1 billion, or just 31% of the $16.7
billion committed in 2008. There were 35
commitments, down from 163. Only one commitment
was made to an opportunistic vehicle, compared with
44 a year earlier.
The only system that bucked the trend was Texas
Teachers, which continued to ramp up its portfolio last
year, with 11 commitments totaling nearly $2.5
billion. That was on top of $2.3 billion in 2008.
The outlook for commitments this year remains dim,
for several reasons. While pensions are in a better
position to invest because of the rebound in the stock
and bond markets, they have more than $50 billion of
unfunded commitments from 2007 and 2008. What's
more, some pensions are focused on working with
investment managers on troubled assets in their
portfolios. CalSTRS, for example, made three
commitments totaling $214 million last year that were
aimed at bolstering existing investments.
Also, some pensions were so burned by losses over
the past couple of years that they remain reluctant to
allocate additional capital to alternative investments,
including real estate. And others have indicated that
they might choose only one alternative-investment
category, rather than sprinkle capital across multiple
sectors as they did in the past.
The downturn caused sharp fluctuations in the
proportion of holdings in various asset classes. In
2008, when stock and bond prices plummeted much
faster than real estate prices, real estate climbed to
8.7% of total assets, from 6.2% in 2007. But last year,
stock and bond prices rebounded while real estate
values were marked down, causing the percentage of
real estate holdings to revert to 6.2%.
Cleveland-based Townsend Group remains the top
real estate consultant to the largest pensions, with 23
clients among the Top 50, unchanged from a year ago.
Courtland Partners, also of Cleveland, was the runner-
up, with five clients, down one from a year ago.
Thirty-six of the 50 pensions had a real estate
consultant, down one from a year ago.
The review was based on the 50 public pension
systems with the largest real estate portfolios. It didn't
include commitments to vehicles that invest in REIT
stock, timber or agriculture. It also excluded
investments in private equity, infrastructure, real
assets or hedge funds that didn't put at least 50% of
their equity into commercial real estate. Also excluded
were fresh commitments to existing separate accounts,
joint ventures or open-end funds.