Pension Fund Inferno? Calstrs Seeks $30 Billion In Leverage Amid CRE Turmoil (RE Makes Up 17% Of Calstrs Portfolio)

Confounded Interest ^ | 01/07/2024 | Anthony B. Sanders

[Kaiser8408a]

California is experiencing a pension inferno!

One of the biggest public pension plans in the US plans to borrow tens of billions of dollars to maintain liquidity instead of triggering a fire-sale of its assets.

Bloomberg reports the roughly $318 billion California State Teachers’ Retirement System (CalSTRS) plans to borrow $30 billion, or about 10% of its portfolio, instead of raising funds through an asset sale that might trigger fire sales.

Borrowing to lever up its real estate-laden portfolio when CRE returns are negative??

Calstrs board members will review the first draft of the policy next Thursday. If approved, the leverage would be used “on a temporary basis to fulfill cash flow needs in circumstances when it is disadvantageous to sell assets,” a CalSTRS policy document stated.

The need to increase leverage comes after a report from the Financial Times last April explained that CalSTRS was planning to write down the value of its $52 billion commercial real estate portfolio after high interest rates crushed the values of office towers.

At the time of the FT report, CalSTRS Chief Investment Officer Christopher Ailman told the media outlet that:

“Office real estate is probably down about 20 percent in value, just based on the rise of interest rates,” adding, “Our real estate consultants spoke to the board last month and said that they felt that real estate was going to have a negative year or two.”

FT noted real estate makes up about 17% of Calstrs’ overall assets.

We’re sure Calstrs is one of many pension plans under pressure from the CRE downturn. Also, regional banks have high exposure to CRE and are still not out of the woods.

Remember these “best minds in real estate.”

[Night Hides Not]

The Big Short is also an appropriate book/movie, though that focused on residential real estate.

[mewzilla]

Meanwhile...

https://www.cnbc.com/2023/12/12/us-pension-funds-heavily-invested-in-china-despite-crackdown.html

[citizen]

Yeah, and all too big to fail.

Setting the stage for some states’ & funds’ taxpayer bailouts with the dole-outs hidden in some omnibus bill with a realy cool, friendly sounding name.

[Wuli]

Real Estate is a bad investment for pension plans.

[grey_whiskers]

“I’m telling you, *this is it!*”

Great flick.

[Liaison]

I think they have been bailed out by at least Obama in this first trillion dollar giveWay. Shovel ready jobs where shoveling money it into failing pension plans like CA and I believe Illinois.

[napscoordinator]

California, illinois and New York need to stop sending their revenue to the federal government. That’s where they are getting screwed. Send in a lot and get a little back. They should think about that.

[Chauncey Gardiner]

When you mix “investment” with “politics” you get (you guessed it) politics

[minnesota_bound]

Those that run the pension could tell the democrat party to stop with the high taxes and undermining business and the country.