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The California Public Employees’ Retirement System (CalPERS) today adopted policies for investments in commodities, forestland, and bonds – three components of the new Inflation-Linked Asset Class (ILAC).
CalPERS has approximately $2 billion invested in ILAC sectors under a new strategy to provide a hedge against inflation while diversifying investments, thus mitigating losses during equity market downturns.
In December 2007, the Board formalized the ILAC program as a fifth asset class with a target allocation of 5 percent of total CalPERS market value over the next three years. The other asset classes are Global Equity (public stocks), Global Fixed Income, Alternative Investment Management (private equity), and Real Estate.
The new policy formalizes benchmarks for ILAC components and allows for using inflation-linked bonds as collateral in addition to cash at a later stage.
“We envision construction ventures for roads, bridges, airports, utilities, water systems and other projects where several components of this new asset class might come into play,” said Rob Feckner, President of the CalPERS Board of Administration. “For example, we might invest in a natural resource or energy-related power plant that could involve private equity, real estate, commodities, and bonds.”
CalPERS investment earnings goal is to exceed the Consumer Price Index, a generally accepted benchmark for inflation, by at least 5 percent.
“This policy sets a strong foundation for sustainable forest management practices in our investment portfolio and positions us well to profit from the global markets in forest carbon credits,” said Charles P. Valdes, Chair of CalPERS Investment Committee.
A policy for infrastructure, the fourth ILAC component, will be considered at a later meeting of the CalPERS Investment Committee this year because it is the most complex of the ILAC program’s four components.
CalPERS began a pilot program in direct commodities investing in March 2007 and has almost $500 million in the program, which has tracked the Goldman Sachs Commodities Total Return Index of more than two dozen natural resource products. In September, it reclassified $573 million of existing investments from private equity, real estate and fixed income in the new ILAC on a provisional basis.
CalPERS is the nation’s largest public pension fund with more than $245 billion in assets. It provides retirement and health benefits to approximately 1.5 million California State, local agency and school employees and their families. For more about CalPERS, visit www.calpers.ca.gov.
