The California Public Employees’ Retirement System has adjusted allocations for its USD183bn investment portfolio, principally by raising its investment target exposure to private equit
The California Public Employees’ Retirement System has adjusted allocations for its USD183bn investment portfolio, principally by raising its investment target exposure to private equity and cash.
The action is in response to the misalignment of the portfolio in the wake of the financial market crisis of 2008. The Calpers board has adopted target allocations and ranges for its asset classes effective January 2008.
‘This is not intended to be a long-range strategy but reflects our preference for higher liquidity and moderate risk, as well as the flexibility to respond to challenges and opportunities in the markets,’ says George Diehr, chair of the Calpers investment committee. ‘Our investment officers will follow these guidelines as we position ourselves for short-term investment opportunities over the next year or so.’
The Calpers board increased the target allocation for its Alternative Investment Management program, or private equity, from ten per cent to 14 per cent, and global fixed income from 19 per cent to 20 per cent.
It reduced global equity (mostly public stocks) from 56 per cent to 49 per cent and raised its cash target from zero per cent to two per cent.
Target allocations for real estate and inflation-linked assets were unchanged, at ten per cent and five per cent, respectively.
The board narrowed discretionary investment ranges around those targets for all asset classes primarily because of declining market volatility and improving liquidity. It set ranges of +/- five per cent around targets for global equity, AIM, fixed income and real estate; and ranges of two per cent to five per cent for inflation-linked assets and of zero per cent to five per cent for cash.
Under the ranges, CalPERS could have nine per cent to 19 per cent of its total market value in the private equity market, for example, with a target of 14 per cent.
‘All investors in every sector have experienced unprecedented devaluations as a result of systemic threats to financial institutions and major companies,’ says Priya Mathur, vice chair of the Calpers investment committee. ‘We reassessed our strategic investment approach, incorporating current assumptions about the market that we didn’t have 18 months ago.’
The pension fund plans to follow up the mid-course adjustment with a more full-blown asset allocation and liability analysis that is tentatively scheduled for the autumn of 2010 – and to take effect in 2011 through 2013.
The revised mix of assets does not significantly change the expected return or volatility of returns compared with the previous asset allocation. It also does not significantly change the expected level of employer contributions or the volatility of those rates.
