GLOBAL - The California Pension and Employees' Retirement Fund (CalPERS), the largest pension fund in the US, has cut its real estate interim target from 10% to 8% due to changing market conditions.

CalPERS spokesman Clark McKinley told IP Real Estate the move was temporary and aimed to bring the target closer to the fund's actual property portfolio, which currently stands at 7.8%.

"It is a kind of tactical thing, and it is also a book-keeping thing to make sure we are on top of things," McKinley said. "It is to make sure what we have is a good reflection of what is going on in the market."

He said the new target would allow the pension fund to invest its cash "more nimbly" in other assets such as stocks and bonds.

The pension fund raised the investment target for equities by 1 percentage point to 50% and for bonds by 3 percentage points to 19%.

CalPERS' investment committee voted for the changes on Monday to take into account the drop in its real estate portfolio following significant write-downs, which left its property portfolio $5bn (€3bn) short of its 10% target.

In principle, the fund's board adjusts its allocation target every three years. It decided in December 2010, however, to review its asset allocation strategy more frequently due to the increased market uncertainty since the financial crisis.

McKinley said the fund's investment staff did not want to be "locked into an arbitrary formula" and feel compelled to increase or decrease investments in real estate and other asset classes "regardless of what's happening in the markets".

"It's not a great time to ramp up real estate," he added.

As a part of its new strategy, CalPERS aims to shift 75% of its real estate holdings in core investments - such as retail, office, industrial, multifamily and income-generating properties - rather than opportunistic investments, such as land development, which bore the brunt of the last crisis.

"But we need time for our opportunistic investments to wind down," McKinley said. "It is not as if we would not invest in opportunistic properties at this time, but it has to be really, really good."

The adjustment, however, is temporary, and the $226bn fund will gradually build up the asset allocation target for real estate to 9% in 2012, he said.

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