CalPERS Hires Quality Control

By Jon Peterson
The California Public Employees’ Retirement System is hiring a former real estate portfolio manager to fill a new position created to ensure the huge pension fund remains consistent with its own investment policies.Christine Gogan, who will join CalPERS in January, comes from Quest Asset Management, where she was a portfolio manager in the alternative investments division. Gogan will report to the CalPERS board.

Quest Asset Management is part of Quest Services Corp. and has approximately $15.1 billion of total assets under management. The company offers its services to pension and profit-sharing plans, charitable organizations and employee-benefit plans.

CalPERS manages retirement benefits for more than 1.6 million California public employees, retirees and their families. As of June 30, CalPERS had 1.14 million active members and 492,513 retired members.

The bad news regarding CalPERS’ real estate investment decisions continues. The pension fund board meets Dec. 14 and will review a report that the agency had a -30.1 percent return on its real estate portfolio during the second quarter of 2009 and a -48.7 percent return over the trailing year. The real estate portfolio is now valued at $13.6 billion.

The pension fund’s real estate consultant, Los Angeles-based Pension Consulting Alliance, is predicting continued dour news ahead. PCA expects the fundamentals and performance of the CalPERS real estate portfolio to continue to head in the wrong direction over the next 12 months and maybe longer. Persistently weak economic conditions, the absence of a functioning commercial mortgage origination and re-financing market and negative leverage are likely to erode income streams and total returns.

The company says the performance of the real estate portfolio has been affected by four factors. Capital markets are one. The macro-economy continues to go through a downturn, which has impacted rents. The pension fund also has exposure to non-stabilized assets with higher amounts of leverage. They have exacerbated the recent underperformance because they provide less income to insulate valuation and increased leverage magnifies returns in upward and downward market cycles.

The consultant has stated that CalPERS is reviewing its partnerships with real estate managers. Some managers have been or are in process of being terminated. San Francisco’s MacFarlane Partners resigned in October. In November, the pension fund stated it was looking into its current relationship with BlackRock Realty.

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