The California Public Employees' Retirement System's (CalPERS) Board of Administration today added Morocco to its list of permissible emerging markets for public equity investments.
The action was based on a report from CalPERS pension consultant Wilshire Associates, which reviewed country and financial market factors of 27 emerging market countries. Factors included political stability, transparency and labor practices.
Under the pension fund's permissible equity policy, CalPERS may invest in Argentina, Brazil, Chile, the Czech Republic, Hungary, India, Indonesia, Israel, Jordan, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, South Africa, South Korea, Taiwan, Thailand and Turkey.
CalPERS will not permit public equity investments in China, Colombia, Egypt, Pakistan, Russia, Venezuela, and Sri Lanka. Sri Lanka already had been granted a one-year "cure" period to improve its score before exclusion from the permissible list in 2007. Sri Lanka's 2007 score improved but still fell short of the qualifying threshold. CalPERS had $359,267 invested in Sri Lanka public equity as of June 30, 2006.
Overall, emerging market countries have continued to score higher in the annual evaluation process, year by year. For example, 14 countries qualified for investments in 2002 and 13 failed to meet the qualifying threshold. This year, only seven of 27 emerging market countries failed to qualify for investment.
"We are pleased that these markets are making big strides to diminish risk and improve the condition of their capital markets for investors" said Rob Feckner, President of CalPERS Board of Administration. "Representatives of emerging market countries also are more forthcoming to researchers, and their stock exchanges and embassies are corresponding more with us than last year."
Wilshire Associates reported that several countries achieved slightly higher scores than in the past, including some countries that still failed to qualify. The Philippines had the greatest gain, from 2.1 to 2.3 in 2007, compared with the permissible list threshold of 2.0.
The pension fund's list of potential emerging markets uses the World Bank's definition of low- and middle-income countries based on per capita income, as well as the potential for investment returns. Developing countries generally include all nations in Latin America, Africa and Eastern Europe, Russia, and Asia – except for Japan, Australia and New Zealand.
The CalPERS investment threshold of 2.0 is a composite of scores ranging from 1 to 3 for country and market factors, which are political stability, including civil liberties; transparency, including press freedom and accounting standards; productive labor practices that prohibit abuse and offer legal recourse; market liquidity and volatility, including the health of the country's stock market; market regulation, regulatory and legal protections for investors; openness to foreign investment; and the proficiency and cost of financial transactions.
"We are pleased that no country that scored above 2.0 in 2006 fell below that threshold in 2007," said Charles Valdes, Chair of CalPERS Investment Committee. "Our challenge here is to expand investment opportunities into emerging markets without incurring unacceptable risk."
CalPERS had approximately $5.2 billion invested in emerging markets as of December 31, 2006.
A copy of the Wilshire Associates report can be found in CalPERS press room at www.calpers.ca.gov.
CalPERS is the nation's largest public pension fund with assets totaling more than $235 billion. The System provides retirement and health benefits to approximately 1.5 million State and local public employees and their families.