CalPERS announced Thursday that it has sold $3 billion worth of real estate as it tries to reduce risk in its investment portfolio.
The sale to an affiliate of New York powerhouse Blackstone Group removes more than 10 percent of CalPERS’ real estate portfolio. The California Public Employees’ Retirement System has been working for years to remove speculative undeveloped holdings from its real estate portfolio and focus more on commercial buildings and other properties that are already developed and producing income.
“This sale allows CalPERS to focus on our strategic plan and on investing in assets and managers that better align with our real estate goals,” said Paul Mouchakkaa, the pension fund’s managing investment director for real assets, in a prepared statement.
CalPERS put the assets up for sale in June.
The deal is a legacy of the housing market crash, which erased nearly $11 billion in value in CalPERS’ real estate portfolio and prompted the pension fund to shift to a lower-risk strategy.
Selling to Blackstone also helps with another strategic goal: reducing the number of outside investment managers with which CalPERS does business. CalPERS hopes to save money by having relationships with fewer managers; the pension fund spent $1.6 billion on fees to outside managers in 2014.
The sale comes as the $293.7 billion fund wrestles with a broader effort to reduce investment risks. The pension fund is considering a plan to lower its “discount rate,” which is a target for annual investment profits. A lower rate translates into fewer risks, although lower investment gains would likely lead to higher pension contributions from state and local governments and public employees.
CalPERS currently operates with a 7.5 percent discount rate.