Pension Funds: Yes on 2

Charter Amendment 2 on Tuesday’s ballot in Los Angeles would allow the city’s three employee pension funds to invest some of their money in real estate. In the interest of flexibility and the potential for increased earnings, the charter amendment deserves passage.

At present, the managers of the three funds that are involved--the fire and police pension systems, the Department of Water and Power system and the city employees’ retirement system--basically can invest only in stocks and bonds. The charter amendment would allow them to use up to 20% of the money to buy property. No more than 5% could be invested in any one project or in any one real-estate pool. Such investments could be made only at the recommendation of an independent real-estate adviser with no direct or indirect interest in the property.

The change in pension investment policies was recommended by a commission that was appointed to study the question. Local pension administrators say that the change would bring the systems into line with the practices of other public employee retirement funds around the state, as well as of corporate pension systems.

Gary Mattingly, general manager of the fire and police pension system, says that about 70% of large corporate pension plans invest some of their funds in real estate, and that 30% to 40% of public retirement systems do so. Both the California Public Employees Retirement System and the teachers’ pension plan invest in real estate, with a 10% limit. The pension administrators also sought the change to offset the volatility of return from stock investments.

The investment of pension funds in any venture requires cautious scrutiny. Real-estate investment probably requires a higher level of caution. There are practical limits to how much real estate a fund should buy, or even that it can buy. Overall, pension investment in real estate consisted of only about 5.5% of total fund assets in 1984, according to the International Foundation for Employee Benefit Plans. There must also be diversity in the kind of real estate that a fund buys, just as there must be diversity in its investments in stocks and bonds. The future security of thousands of public employees is at stake.

This charter amendment addresses those concerns, and we recommend a Yes vote.