The California Public Employees' Retirement System, the giant state workers pension fund, is severing its investment ties with a Napa-based vineyard management firm pushing one of Sonoma County's largest and most controversial land-use projects.

The move threatens Preservation Ranch, the proposed 1,769-acre forest-to-vineyard conversion in northwestern Sonoma County, wine industry sources said.

Environmentalists have rallied nationwide against the project, saying it would harm water resources and wildlife, including beleaguered salmon and steelhead populations in the Gualala River watershed.

CalPERS confirmed the investment decision Wednesday.

The $225 billion fund, the country's largest government pension system, has a majority stake in Preservation Ranch through an investment portfolio managed by Premier Pacific Vineyards of Napa.

The coming shakeup — CalPERS has yet to name a replacement manager for its vineyard investments — could put Preservation Ranch on hold, industry sources said.

A CalPERS spokesman would not say Wednesday how the fund's decision could affect the proposed vineyard development on nearly 20,000 acres of second-growth redwood and fir forest outside of Annapolis.

An environmental impact report on the project, which government officials say is the largest of its kind in modern state history, is due out at the end of this year. Public comment periods and hearings before county boards, including supervisors, would follow.

Supporters insisted the investment decision would not stall the project, first proposed in 2006.

"The management change should not have any impact on Preservation Ranch," Tom Adams, land-use director for Premier Pacific Vineyards, said in an email.

The move was announced to the firm's customers and business partners in an Oct. 3 email from Richard Wollack, Premier Pacific's co-founder and managing principal.

"We are writing to inform you that effective the end of this year we will be exiting the management of vineyards we developed and managed for CalPERS," Wollack wrote.

A yet-to-be named manager would take over on Jan. 1, he said.

Wollack said Wednesday that the company would have no comment.

The email announcement and a Sept. 30 meeting the company held with its staff to convey the news were first reported by Lewis Perdue, a Sonoma resident and editor and publisher of Wine Industry Insight, an online publication.

Premier Pacific Vineyards was created by Wollack, a Bay Area real estate investment firm owner, and William Hill, a longtime Napa vintner.

The company develops and manages high-end vineyards. Its website lists current operations on 26 vineyards in California, Oregon and Washington.

The company purchased the 19,652-acre Preservation Ranch property in 2004 for $28.5 million. The former owner, a Willits-based timber company, had previously proposed 10,000 acres of vineyards on the same property and other land in adjacent Mendocino County.

Starting in 2002, CalPERS has invested $200 million in two vineyard portfolios managed by Premier Pacific.

CalPERS latest real estate investment report shows its assets after fees in the two portfolios totaled $122 million at the end of March, a 39 percent drop from its initial outlay.

Other investors include Premier Pacific Vineyards, which committed $10 million in 2002, and Commonfund Realty, a Connecticut-based endowment adviser, which committed $50 million in 2008 toward six land purchases.

CalPERS is the majority investor in Pacific Vineyard Partners, the portfolio that includes the Preservation Ranch property, county records show.

Title to the land is listed under four affiliated business units.

CalPERS spokesman Wayne Davis would not discuss the details of the agency's vineyard ownership or how the investment change could affect that ownership, including control of Preservation Ranch.

Generally with such changes "CalPERS would retain its share of the ownership of underlying assets," Davis said.

Wine industry sources provided a similar assessment.

One local vineyard developer who declined to be named said the fallout for Preservation Ranch was clear.

"On hold, baby," he said.

Davis said the investment switch was part of the pension fund's ongoing restructuring of its real estate assets.

Environmental leaders said Wednesday they weren't yet sure what to make of the news.

"It's a very interesting development," said Jay Halcomb, chairman of the Sierra Club's Redwood Chapter.

The group and others have called on CalPERS to abandon the vineyard plans and manage the entire property as a sustainable timber reserve. Halcomb said those calls would now likely increase.

"We've been saying for a couple of years that this was a bad investment to begin with. And of course with the wine market struggling, it didn't make any sense," he said.

Preservation Ranch supporters have pushed back, saying the project represents the best balance between development and environmental protection. It would permanently set aside 15,000 acres for timber operations, dedicate 2,700 acres for a private wildlife preserve and donate 220 acres for a public park expansion.

Premier Pacific Vineyards expected to spend up to $7 million on studies, including $2 million on the draft environmental impact report. Its application files at county offices stand four feet high.

David Schiltgen, the county planner overseeing the application, said the ownership switches are not uncommon for large land use projects making their way through the review process.

"It's not the rule. It's more the exception," he said.

A change on a project the size of Preservation Ranch could present some challenges, he said.

"It's always difficult to change horses midstream," he said.

Contact Staff Writer Brett Wilkison at 521-5295 or brett.wilkison@pressdemocrat.