California is pricing itself out of existence

Editor's note: California is such a great place to live. Would it be too much to suggest that California public sector pensions are exorbitant? There are frighteningly incompetent people in government positions in California's state bureaucracy entrusted to manage California's fiduciary responsibilities. California still hasn't been able to produce a state check book and that was almost 4 years ago. California's public pensions are an issue of public concern because of the costs they impose on taxpayers. This is going to place more of a burden on California taxpayers because more than 800,000 people moved out of California between 2021 and 2022. And it is likely more will continue to leave the communist state. Not only are insurance companies leaving California, but Chevron and ExxonMobil (see Big Oil v. California) are in negotiations to possibly leave the state. This is in addition to the 352 companies that already moved their headquarters out of state between 2018 and 2021. This number is probably more and this includes tech companies that are "leaving in droves." Think of the billions in tax revenue leaving the state.

Almost 80,000 California Retirees Receive Over $100,000 In Pension Pay
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Source: Zero Hedge

Pension Fund Crisis? Calstrs Seeks $30 Billion In Leverage Amid CRE Turmoil

By Tyler Durden | January 8, 2024

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.

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.

According to Calstrs consultant Meketa Investment Group, the public pension fund already deploys leverage upwards of 4% of its portfolio, adding the proposed increased leverage won't be used for a new asset allocation policy but rather used to smooth cash flow and as an "intermittent tool" to manage the portfolio.

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."

For Calstrs, CRE was one of the best-performing asset classes until Covid and the Fed embarked on the most aggressive interest rate hiking cycle in a generation. Real estate had delivered double-digit returns over a 10-year period for its million-member plan, according to an update last March.

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.

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