Public pension fund Calpers is set to cease making investments in real-estate deals that can force tenants out of lower-rent properties.

The staff of Calpers, or the California Public Employees' Retirement System, has submitted a policy revision to its investment committee that would prohibit Calpers from participating in real-estate deals in which rent-regulated, multifamily housing units are converted to market-rent properties. The committee had directed the staff to review the issue.

"Affordable housing is an important aspect of Calpers real-estate-investment strategy," the recommendation said. A vote is expected Monday.

The news about the staff proposal was earlier reported by the Sacramento Bee.

Calpers—the nation's largest public pension fund by assets—has come under heat recently for its role in deals in which the fund's real-estate partners convert regulated low-rent properties to market-rent apartments. "These investments have exposed Calpers to risks including, but not limited to, damage to Calpers's reputation as a responsible investor," the staff proposal said. Among the higher-profile investments Calpers made that raised this issue were in Manhattan's Peter Cooper Village and Stuyvesant Town apartment complex and buildings in East Palo Alto, Calif. Calpers's role in those deals was the subject of a February article in The Wall Street Journal.

Such investment practices have drawn increased scrutiny. Calstrs, the California State Teachers' Retirement System, has submitted language similar to the Calpers proposal to its board, which is expected to take it up in June. Earlier this year, state legislation was proposed that would prohibit Calpers and Calstrs from investing in a company engaged in "predatory investment practices" that lead to the displacement of people in rent-regulated housing to generate profits to investors. The bill as introduced would also require the fund boards to report any such investments to the legislature.

The California Apartment Association, a rental-housing trade group, has opposed the bill. The trade group says that while it doesn't believe in "predatory investment practices" as defined in the bill, it believes "a state law that adds perceived barriers to investment in rent control communities is unwarranted and unnecessary," according to a letter to an assembly member.

Write to Jamie Heller at jamie.heller@wsj.com

FAIR USE NOTICE. This document may contain copyrighted material the use of which may not have been specifically authorized by the copyright owner. Tenants Together is making this article available on our website in an effort to advance the understanding of tenant rights issues in California. We believe that this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the U.S. Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond 'fair use,' you must obtain permission from the copyright owner