Pension Funds Pull Back on U.S.-Based Stocks

As the U.S. stock market struggles, it is facing another head wind: Some of the nation's most powerful investors are unloading shares in a big way, according to The Wall Street Journal.

Several of the largest public pension funds have been selling billions of dollars held in U.S. stocks, and others are expected to join in. In most cases these actions are unrelated to the recent market jitters, though worries about the economy, the weakening dollar and the credit crisis could be accelerating these moves. More broadly, they are part of a long-term plan to reduce stock holdings in U.S. companies to help fund other investments.

Among the funds that are part of this trend: the New York State Teachers' Retirement System, the New York State Common Retirement Fund, the Teacher Retirement System of Texas and the Florida Retirement System Pension Plan. Collectively, these plans control more than $500 billion in assets.

Recently, the nation's largest public pension fund indicated that it may soon join them. Russell Read, chief investment officer for the California Public Employees' Retirement System, or CalPERS, said at a board meeting last week that the $250 billion fund could enhance returns by moving assets to foreign from U.S. stocks.

One plan calls for Calpers to reduce its U.S. stock position to 24%, from 40% of its portfolio, which would represent the fund's lowest allocation to U.S. stocks in more than 20 years. Calpers' board will consider the measure next month.

While some public pension funds are bucking the trend by keeping their U.S. stock holdings steady, industry consultants said the clear majority -- many still wary of the stock market selloff at the start of this decade -- are cutting back. “This is a long-term systemic trend,” said Cynthia Steer, chief research strategist at Rogerscasey, a Darien, Conn., consulting firm. “It isn't going to turn around soon.”

For more, Pensions & Investments this week reports that for the first time more real estate investment trusts (REITs) are based outside of the United States due to privatizations and mergers. Institutional investors are beginning to add global real estate securities allocations, in tandem with this growth of non-U.S. real estate investment trusts.