UNITED STATES - LandSource Communities Development LLC, a US land investment entity backed by California Public Employees Retirement System, the largest pension fund in the United States, has filed for Chapter 11 bankruptcy protection.

The move will hopefully allow LandSource to restructure its debts and obligations and the company is expected to continue to operate, after the firm struggled to secure a debt financing agreement in current market conditions.

CalPERS is understood to have made an investment in LandSource worth $1bn (€644.6m) in spring 200 - an investment which was being co-managed by MacFarlane Partners and Weyerhaeuser Realty Investors.

For its equity investment, the pension fund holds a 68% ownership interest in LandSource while other partners of LandSource are homebuilder Lennar Corporation and LNR Property Corporation, with each of them holding a 16% stake.

At this point, there is no indication what will happen to the assets that are part of LandSource but the venture has heavy investments in land in Southern California and the plan had been to use the land to develop single-family housing in the future, before the assets fell victim to the housing market downturn and the subsequent credit crunch.

As things now stand, it is unclear what will happen to CalPERS' equity stake in LandSource but the pension fund would be in the second position to take back the assets in LandSource after debt holders in the company.

LandSource has received commitments for debtor in possession financing from a group of lenders led by Barclays Bank, including a $135m revolving line of credit which should enable the company to meet post-petition obligations and fund operations during the chapter 11 period.

Despite this embarrassing setback, CalPERS is still in a strong position with its overall investment portfolio as its investment in LandSource represents less than 0.5% of its overall investment portfolio, according to Pat Macht, assistant executive officer in the office of public affairs for CalPERS.

"We are a well-diversified pension fund that is fully funded and has placed assets in a variety of investment classes."

CalPERS now has total plan assets with a market value at around $245.4bn.