UNITED STATES - The California Public Employees' Retirement System (CalPERS) announced yesterday a 35% decline in the market value of its residential real estate portfolio.

The country's largest pension fund with over $189bn (€151bn) in assets revealed its housing assets had fallen in value by $3.2bn, from $9.3bn to $6.1bn, over the 12 months ending June 30, 2008.

George Diehr, chair of the investment committee for CalPERS, said:  "This portfolio reflects the realities of today's market and accurately depicts readjustments of price and risk.

"We intend to keep the vast majority of our assets and our long-term horizon enables us to be patient. If the market values increase over time, we can expect cash flow back and a return on our capital," he added.

Assisted by Morgan Stanley and LePlastrier Development Consulting, CalPERS has been evaluating existing properties, analysing the capital structure of the programme, reorganising outstanding debt arrangements and reducing leverage in some cases.

According to LePlastrier Development Consulting, CalPERS's reliance on loans to boost housing investments to a peak of 20% helped contribute to the decrease in the real estate's portfolio.

The pension fund board has been attempting since January 2007 to enhance overall real estate programme policies and processes so they are right for the future economic situation and help the fund's investment plans.

Anne Stausboll, interim chief investment officer at CalPERS, said: "The investment committee has approved policy and procedure enhancements that ensure that the board's consultant, an independent fiduciary, and a real estate staff investment review committee are consulted on each investment proposal. And we are working with the investment policy subcommittee on changes to the housing policy and the overall real estate policy to guide us in the future."

CalPERS revealed that the decline in the value of its residential assets has put the overall real estate portfolio into negative territory.

However, gains in the 12-month period through to June 30, 2008 have made up for the decline, with CalPERS's total real estate investments delivering positive returns over the last three and five years and since inception.