US - The California State Teachers Retirement System (CalSTRS) has temporarily increased its real estate allocation range to prevent the need to sell assets during a downturn.

The pension fund's exposure to real estate currently stands at 14.4%, overshooting its previously set allocation range of 4-13%, in part due to falling values in its equity portfolio.

The board at CalSTRS made the decision last week to expand the range to 4-17% on a temporary basis.

The pension fund reached a high water mark of $176bn (€141bn) for total assets under management at the end of 2007. Total assets are now valued at $147bn, with global equities the main cause of the reduction.

CalSTRS's real estate assets have not undergone the same level of re-pricing, inadvertently increasing the pension fund's weighting to property - otherwise known as the denominator effect.

Had the pension fund maintained its old allocation range for real estate it would have been forced to sell assets during a downturn. But CalSTRS officials said it would not be prudent to be forced into automatic rebalancing during the present market volatility and illiquidity.

The pension fund will review situation at its board meeting in June 2009, when its real estate allocation could be re-adjusted again depending on the financial situation.
 

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