This is hedge fund behavior, selling your most liquid investments to prop up the illiquid.
From the Wall Street Journal:
The nation's largest public pension fund, known as Calpers, is unloading stocks in a falling market to make sure it has enough cash to meet its obligations.
The pressures come as the California Public Employees' Retirement System has had to raise cash to fulfill commitments to private-equity firms and real-estate partners. The giant fund's predicament is another sign of how the market selloff is tightening the screws on pension funds nationwide. Many other pension funds have similar partnerships and could also confront liquidity strains....
...Under normal conditions, pension funds count on some private-equity partners to distribute investment gains, while pensions owe some partners more capital. During the recent market selloff, however, distributions have dried up while capital calls continue. That's created a mismatch and a cash strain.
Since the credit markets have tightened up and real estate and alternative investments aren't very liquid, Calpers has been compelled to sell off stocks to raise large sums quickly. Those sales are turning paper losses into realized losses.
Calpers said it had $188.8 billion under management as of Wednesday, down 21% from the end of June. The fund, which said it had about 63% of its assets in global stocks at the end of August, has been punished severely by the stock-market selloff.
Critics say that some of Calpers's troubles are of its own making. The pension fund is the main investor in a partnership that is expected to lose much of its nearly $1 billion investment in LandSource, a venture that owns thousands of acres of undeveloped residential land north of downtown Los Angeles and that filed for bankruptcy protection in June....MORE
KGO-TV, San Francisco has another aspect of the story:
CalPERS may need bailout
...With stock market losses topping $50 billion since July 1st, CalPERS is on track to needing help in just two years if the nose dive continues on Wall Street.
Local government and state retirees are guaranteed a certain amount, so the money has to be there.
"What this really is, is compensation. It's part of an employee's compensation package," said Macht.
Taxpayer groups are upset that Californians have to foot the bill when many employers have moved away from pension plans.
"This is adding insult to injury. At the same time we're seeing our own 401k's get hit, we're on the hook to make up the shortfalls for public employees who are guaranteed their full pensions without any risk," said Jon Coupal, from the Howard Jarvis Taxpayers Association.
Cities and counties also use CalPERS. Many can barely afford to keep services going, let alone contribute more to retiree benefits....MORE
At the same time PrivateEquityRealEstate is reporting the pension behemoth has found a fund with really good projections:
CalPERS invests $400m in Sternlicht’s latest fund
The California pension has committed $400 million to Starwood’s $3bn Global Hospitality Fund II, which is targeting 20% IRRs. This summer, Sternlicht said he was rapidly expanding his latest hotel brand: the Baccarat, based on the famous crystals.
Starwood Capital has received a $400 million commitment to its latest global hotel fund from the $233 billion California Public Employees’ Retirement System.
CalPERS said at its recent investment committee meeting it would invest $400 million with Starwood Capital Global Hospitality II, which is believed to be targeting $3 billion.
Despite being overweighted to both real estate and private equity, CalPERS committed a total of $1.2 billion to the alternatives asset class at the meeting.
The pension fund’s target allocation to real estate and private equity is 10 percent, however the actual allocation, as of the end of August, stood at 10.1 percent for real estate and 10.8 percent for private equity. The value of each portfolio is $23.6 billion and $25.3 billion respectively....MORE