The California Public Employees' Retirement System (CalPERS) decided today to permit stock purchases in selected companies in China and other developing countries.
The pension fund amended its Permissible Equity Markets Policy to permit current emerging markets managers AllianceBernstein, Dimensional Fund Advisors (DFA), and Genesis to buy stock in such companies on a case-by-case basis, effective January 1, 2007.
The provision will leave intact the System's policy that prohibits public equity investments in emerging market countries that have failed to meet an annually required composite threshold score based on country and market criteria. Factors include political stability, transparency, productive labor practices, market liquidity and volatility, market regulation/legal system/investor protection, capital market openness, and settlement proficiency/transaction costs.
The $4.8 billion CalPERS emerging markets portfolio currently prohibits public equity investments in China, Colombia, Egypt, Morocco, Pakistan, Russia, and Venezuela because they failed to meet the permissible market threshold score.
"We will allow selective investments in good companies in these countries while maintaining our strict standards for investment and keeping a sharp eye out for risk," said Rob Feckner, CalPERS Board President. "By allowing investment in selected public companies that meet our standards, we could encourage others to also qualify by raising their standards to meet our investment criteria."
Under the proposal, companies would qualify for CalPERS investment by complying with the pension fund's permissible market guidelines and the United Nations Principles for Responsible Investment.
External managers who wish to invest in a public equity security in a non-permissible market must address country and market factors where the company's home country scored below the threshold, and explain why the company would meet threshold standards.
Managers have indicated that such transactions might account for a shift of only a few percentage points from the portfolios they currently oversee for CalPERS. They would periodically report on company investments in restricted countries, and CalPERS would have a divestment option.
"This approach will minimize our investment risks but keep our options open to global economic growth and opportunities in emerging markets like China," said Charles P. Valdes, Investment Committee Chair. "Some of these markets offer promising investment opportunities."
CalPERS is the nation's largest public pension fund with assets totaling more than $225 billion. The System provides retirement and health benefits to approximately 1.5 million State and local public employees and their families. For more information about CalPERS, visit www.calpers.ca.gov.
