Pension Fund Cuts New Real Estate Money by 73%

SAN FRANCISCO-The City and County of San Francisco Employees’ Retirement System has signed off on an expected 73% reduction in its new capital investment in real estate for the next fiscal year. SFER’s real estate consultant, the Townsend Group, recommended the pension fund allocate no more than $200 million toward real estate, down from $750 million in the previous fiscal year, and invest all of it in Non-Core assets as opposed to Core assets.

“The broad real estate markets are in transition,” says Townsend Group principal Micolyn Yalonis in an executive summary of the revised investment strategy, a five-year planning document that is reviewed annually. “Re-pricing is expected but has not begun to clear within market transactions or asset valuations.”

Given that the Core portfolio is projected to be 49% at the end of 2010 and the longer-term goal is 30%, “Townsend does not recommend new Core allocations and will instead continue to focus new allocations in the non-core strategies,” states an executive summary of its real estate investment recently approved by the SFERS’ Board of Retirement. Specific strategies will be reviewed by the Board later this year.