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The California Public Employees’ Retirement System today adopted a new principles-based approach to guide external managers who invest for CalPERS in emerging international markets.
Since 2002, CalPERS has placed select emerging market countries – including Russia and China – off-limits to public equity investments based on country and market factors. Seven of the 27 countries fell short of the scoring threshold of 2.0 this year.
“Year by year, scores are improving, and many countries have responded to our standards for investing,” said Rob Feckner, CalPERS Board President. “These gains indicate that our permissible countries policy has improved business practices and addressed risk factors as well. Now it’s time for a broader, more cost-effective approach.”
Going forward, a principles-based approach will enable external managers to take advantage of market opportunities in all developing countries listed in the FTSE All Emerging Index, including five countries where CalPERS investment is currently prohibited - China, Colombia, Egypt, Pakistan, and Russia. A principles-based policy in lieu of a country list will result in cost savings of approximately $1 million a year in research services required to compile the list.
Before investing, managers will assess country and company prospects in terms of political stability and the development of democratic institutions and principles; transparency of information, including elements of a free press; harmful labor practices, including the use of child labor; corporate social responsibility; adequate market regulation and liquidity; commitment to free market policies and openness to foreign investors; reasonable trading, settlement proficiency and reasonable transaction costs; and appropriate disclosure on environmental, social, and corporate governance issues.
The emerging markets managers would report back annually to CalPERS on their application of the principles. CalPERS currently has $5.8 billion with six emerging markets managers – AllianceBernstein, Batterymarch, Dimensional Fund Advisors (DFA), Genesis, Lazard, and Pictet.
“This new principles-based approach will help us achieve the objectives of our permissible equity policy,” said Charles P. Valdes, Chair of the CalPERS Investment Committee. “We also will continue our engagement with emerging markets and countries through the activities of our corporate governance funds and collaboration under the U.N. Principles for Responsible Investment Emerging Markets Project.”
CalPERS has total assets of more than $240 billion. The pension fund 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.
