Calif. pension fund changes policy on real estate investing to protect low-income residents

CalPERS changes policy on real estate investing

SACRAMENTO, Calif. — The nation’s largest pension fund on Monday changed its policy on investing in real estate to balance its socially responsible investment philosophy with its quest for profits.

The decision came after the California Public Employees Retirement System, which manages about $210 billion in assets, saw its real estate portfolio lose nearly half of its value from September 2008 to September 2009.

As of Friday, CalPERS’ total real estate portfolio was worth about $14.8 billion.

Some of the biggest losses came from investments in real estate ventures whose financial success depended on pushing low-income residents out of rent-controlled housing.

The revised policy, adopted at a CalPERS board meeting Monday, says the fund will not participate in investment strategies that rely on eliminating rent-regulated housing or raising rents above regulated levels.

CalPERS is known for its influence on socially responsible investing. Earlier this year, it voted to remove the limit on the number of shareholder proposals it can issue to companies in its portfolio, a change that could boost its influence among publicly traded companies.

Monday’s action by the nation’s largest pension fund could encourage other large investors to adopt similar policies.

CalPERS has had a practice of trying to invest in projects that will help low-income tenants. But critics say the funds cannot make money off such investments unless tenants enjoying regulated rental rates are pushed out of their homes to make room for people who will pay more.

CalPERS wants to balance a socially responsible investment philosophy with the need to ensure adequate long-term returns for its pensioners.

“The intent is to prevent us from investing in those strategies that are not well intended and had tenant impacts that were unacceptable to staff,” Laurie Weir, CalPERS’ real estate portfolio manager, told the board. “We really are trying to prevent those tenant impacts that we have seen over the past year.”

A real estate investment that went bust in New York last year prompted CalPERS to re-evaluate its approach to that aspect of its portfolio.

CalPERS lost $500 million in a failed investment in Stuyvesant Town and Peter Cooper Village in New York that displaced low-income residents. The California State Teachers’ Retirement System lost $100 million in the same deal.

The policy change was prompted by both those real estate losses and the risk to CalPERS’ reputation, said spokesman Brad Pacheco.

CalSTRS is also considering a policy that would ban investments in strategies that are intended to capitalize on displacement of low-income households, spokesman Ricardo Duran said in an interview.

“Public pension funds should not be used to evict working people from their housing,” said Dean Preston, an advocate for the group Tenants Together.

Preston said about 1,500 residents were displaced from a property called Page Mill in East Palo Alto, Calif. CalPERS invested in that property and lost another $100 million.

“We think this decision is a milestone,” Preston said after the meeting. “We hope that it makes it more difficult for investors making this type of investment to accomplish their goal.”