The revised asset allocation mix calls for a one percent increase in both the pension fund's U.S. and international equity portfolios and reduces by one percent each CalPERS private equity and real estate programs.
The slight change prevents the fund from paying high transaction costs to continually rebalance its investment portfolio and keeps its performance from diverging too far from its benchmark.
"We are in a seller's real estate market and there are opportunities for us to prune our portfolios and take some profits," said Sean Harrigan, President of the CalPERS Board. "This combined with the increase in our stock portfolios from the market rebound requires us to make some minor allocation changes to keep our portfolio in check."
But fund officials caution that the change does not represent a negative outlook for real estate and private equity markets.
"Investors should not misinterpret this action as a withdrawal from real estate and private equity," sad Rob Feckner, Chair of CalPERS Investment Committee. "It is a reflection of the success of our real estate and private equity programs to take profits and reallocate assets to other parts of our portfolio. We are fully confident in these programs and are giving our staff greater flexibility to take advantage of future market opportunities."
Under its revised policy, CalPERS will shift its target asset allocation for real estate from 9 to 8 percent of the System's assets, while increasing the allocation range that staff can manage the portfolio from 7-11 percent to 4-12 percent. The pension fund's private equity investments will move to 6 percent, from its previous target of 7 percent, while the range will expand from 5-9 percent to 3-9 percent. CalPERS will increase its U.S. stock portfolio to 40 percent up from its current target at 39 percent. Its International equity target will increase from 19 to 20 percent.
No change will be made to the amount CalPERS targets for global fixed income, which represents 26 percent of the Fund’s assets.
The revised mix of assets does not change the expected return or volatility of returns compared to CalPERS current asset allocation. It also does not increase or decrease the expected level of employer contributions or the volatility of those rates.
Today's action marks the first shift in asset allocation for CalPERS since October 2002. The CalPERS Board also voted today to review its asset allocation once every three years in the future. CalPERS is the nation's largest public pension fund with assets totaling more than $177 billion. The System provides retirement and health benefits to 1.4 million State and local public employees and their families. For further information on CalPERS, please visit the System's web site at www.calpers.ca.gov.
