REAL ESTATE – Howard Schwartz, one of the candidates vying for a seat on the California Public Employees’ Retirement Scheme’s board, has come out strongly in favour of US real estate
Schwartz, a CalPERS lawyer, told IPE Real Estate that sticking to US equities and real estate could help “placate general resentment over public employee pensions”.
Describing his own investment philosophy as “relatively conservative”, Schwartz said: “The public does not have a tolerance for volatility. Thus, as a general principle, reducing risk, even at the expense of limiting long-term average returns, is a better way of ensuring the survival of the basic pension benefit afforded under the CalPERS system.”
Despite the potential damage this approach could inflict on returns and a downturn in the domestic real estate market, he said the fund “should be looking for real estate bargains” in the short term.
However, Schwartz declined to comment on whether he would support an increase in the pension fund’s real estate allocation above the current 8%. Real estate returned 39.3% for CalPERS in 2005 after it sold half of its portfolio before the US market peaked out.
Yet he has made no secret of his preference for real estate over potentially riskier alternative asset classes.
“I think CalPERS should have a fully balanced portfolio, which includes investments in both domestic and foreign equities and real estate,’ he said. “The temptation to expand our portfolio into riskier ventures, such as hedge funds or private capital enterprises in emerging markets, should be resisted.”
His comments represent a swipe at incumbent trustee George Diehr, who backs expansion into commodities and greater investment in emerging markets. The fund’s current target is to invest 50% of its real estate allocation in overseas markets.
The election is unusual because two challengers are trying to unseat Diehr, chairman of the fund’s health benefits committee and a professor at California State University. The second challenger is CalPERS watchdog James McRitchie.
Even if he manages to oust Diehr, Schwartz acknowledges that his influence on the fund’s direction will be limited. The board usually accepts the recommendations of professional staff and outside consultants “without significant modification”, he said.
The election result will be announced in mid-October.