CalPERS Adopts New Asset Allocation Mix - Equalizes U.S., International Stocks - Hikes Private Equity, Real Estate

The California Public Employees’ Retirement System Board of Administration today adopted a new investment asset allocation for its $250 billion portfolio to deliver optimum risk-adjusted investment returns over the next three years.

CalPERS will continue to target two thirds or 66 percent of its portfolio to public and private equities combined. Fixed income and inflation-linked assets combined will be 24 percent. Real Estate asset allocation will be 10 percent.

Global publicly-traded stocks, which were 60 percent of the total portfolio, will move downward to 56 percent and will be evenly split between U.S. stocks and international stocks. Private equity, which was 6 percent, will gain assets as it moves to 10 percent, offsetting the decrease in publicly-traded equities.  Similarly, Fixed Income’s target will decrease from 26 percent to 19 percent; the new inflation linked assets will have a 5 percent allocation. Real estate’s 10 percent allocation is a 2 percent increase over the previous allocation of 8 percent.  

 “We have achieved strong results for the last four years, but that is not a guarantee that we would be as successful with the existing allocation,” said Rob Feckner, CalPERS Board President. “This new asset allocation – with its emphasis on international stocks, venture capital, commodities, real estate and infrastructure – is the right mix to help us provide for our retirees and minimize the need for taxpayer dollars.” Historically, 75 cents of every dollar for retirement benefits comes from investment earnings.

CalPERS investment officers will use the targets to deploy capital over the next two to three years, when the Board tentatively is scheduled to again review and revise the allocation mix, based on dynamic market trends.

The Board also set ranges for investing.  Relative to each asset class target allocation, ranges are +/- 3 percent for AIM, +/- 5 percent for total equity, +/- 5 percent for fixed income and the inflation-linked asset class combined, and +/- 3 percent for real estate.  In addition, inflation-linked assets will comprise from 0 to 5 percent of the overall portfolio.

There is no timeline for deploying funds under the new allocations since investments will depend partly on market trends and opportunities. Most new targets will be reached within two to three years.

“These revised allocation markers reflect the promise of our private equity, real estate, and asset-linked investment classes,” said Charles P. Valdes, Investment Committee Chair. “By hitting the reset button every few years, we keep our portfolio balanced and diversified in a fluid market that never stands still.”

The revised mix of assets does not significantly change the expected return or volatility of returns compared with the current CalPERS asset allocation. It also does not significantly change the expected level of employer contributions or the volatility of those rates. The decision made on asset allocation followed months of analysis by staff and work by the CalPERS Board at its asset allocation workshop held in November. 

CalPERS is the nation’s largest public pension fund with assets totaling more than $250 billion. The System provides retirement and health benefits to approximately 1.5 million State and local public agency employees and their families. For more information about CalPERS, please visit the System’s Web site at www.calpers.ca.gov.