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The California Public Employees’ Retirement System (CalPERS) today adjusted allocations for its $183 billion 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 last 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,” said 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 (AIM) program, or private equity, from 10 percent to 14 percent, and global fixed income from 19 percent to 20 percent. It reduced global equity (mostly public stocks) from 56 percent to 49 percent and raised its cash target from 0 percent to 2 percent. Target allocations for real estate and inflation-linked assets were unchanged, at 10 percent and 5 percent, 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 +/- 5 percent around targets for global equity, AIM, fixed income and real estate; and ranges of 2 percent to 5 percent for inflation-linked assets and of 0 percent to 5 percent for cash. Under the ranges, CalPERS could have 9 percent to 19 percent of its total market value in the private equity market, for example, with a target of 14 percent.
“All investors in every sector have experienced unprecedented devaluations as a result of systemic threats to financial institutions and major companies,” said 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 today’s mid-course adjustment with a more full-blown asset allocation and liability analysis that is tentatively scheduled for the fall 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.
CalPERS is the nation’s largest public pension fund, administering retirement benefits for more than 1.6 million active and retired State, public school, and local public agency employees and their families on behalf of 2,600 California public employers. For more information about CalPERS, visit www.calpers.ca.gov.
