CalPERS Earmarks $500 Million For Pilot Commodities Investment Program

The California Public Employees' Retirement System (CalPERS) today approved $500 million for investments directly linked to prices of energy, metals, and agricultural products, and in companies that produce and distribute such natural resource commodities.

"Our goal is to further diversify our assets and take advantage of long-term market opportunities for positive returns in the resources sector," said Rob Feckner, CalPERS Board President. "Commodities can play an important role in helping us lock in potential gains and reduce risks across the CalPERS portfolio."
 
CalPERS currently invests 8.4 percent of its assets in the natural resources sector, across its stock, bond, and real estate portfolios, focusing mostly in energy and raw materials production and distribution. The pension fund also has other investments in utilities, transportation, and chemicals that are affected by developments in the natural resources arena.

CalPERS will decide as early as next summer whether to create a new natural resources/commodities asset class within the $220 billion pension fund -- besides the current classes of public equity (stocks), private equity, fixed income (including bonds), and real estate.

"Global demand for natural resources and improved systems to extract and deliver them will only increase," said Charles P. Valdes, CalPERS Investment Committee Chair. "We will look into commodities futures contracts and related investments to naturally complement, diversify and add value to our expanding securities investments in the energy and raw materials sectors. Our approach is really quite innovative in that it captures both the investment benefits of commodities while improving the risk and return characteristics of our related stock, bond, and real estate investments."

Implementation is subject to approval of a commodities investment policy by the CalPERS Investment Policy Subcommittee, scheduled for introduction on December 15, 2006, and final review by the Investment Committee thereafter. CalPERS will hire additional staff to administer the program, make investment decisions, monitor risk, and report on activities and performance as the new program gets under way in 2007.

The program objective is to add incremental diversification to CalPERS investments while meeting or exceeding the return of a pre-specified commodity futures index, after fees. Commodities experts advised the CalPERS Board at a September workshop that an investment in a commodities futures index reduces the volatility of fund returns, cuts losses, and generates gains during severe downturns in bond and equity markets.

The pension fund plans to terminate the pilot program in 2008 pending further direction from the Investment Committee’s Asset/Liability Management Workshop.

CalPERS is the nation's largest pension fund with assets totaling more than $220 billion. The System administers retirement and health benefits for approximately 1.5 million current and retired public employees and their families, and 2,600 California public employers. For more information on CalPERS, visit www.calpers.ca.gov.