CalPERS CIO: Portfolio ‘deviating away’ from targets amid market chaos

The pension's portfolio has lost billions in value as the public markets have struggled due to the coronavirus pandemic.

California Public Employees’ Retirement System chief investment officer Ben Meng warned the pension’s board Wednesday that the rough stretch in public markets due to the coronavirus pandemic is affecting other parts of its portfolio.

“Because of the fluctuations in the market over the past few weeks, our portfolio rates are deviating away from our strategic asset allocation targets,” Meng said at the meeting, which was conducted via teleconference. “If market volatility remains aggravated, we may slip to the outer range of these targets.”

Meng did not tell the board which asset classes were experiencing this issue. He did say staff would be taking action.

“We are monitoring the situation very closely, and have a plan in place to address it, and we’ll keep you informed,” he said.

CalPERS declined to elaborate on the asset classes to which Meng was referring.

CalPERS’ market value topped $400 billion in January, according to the Sacramento Bee, but has since dropped considerably. According to its website Wednesday, CalPERS’ market value was $352.89 billion.

During economic downturns, institutional investors’ private equity portfolios are vulnerable to the “denominator effect.” This occurs when the sudden drop in public equity value can cause illiquid portfolios to take up a larger piece of the overall portfolio than allowed by policy.

Despite deploying its highest level of private equity capital in a decade last year, CalPERS’ private equity portfolio was underweight before the drop in public equities. As of December 31, it was valued at $26.1 billion, making up 6.6 percent of the total portfolio. That was below its target of 8 percent.

The pension’s 2019 private equity returns were also the slowest in a decade, according to a presentation set to be delivered to the investment committee Monday by general investment consultant Wilshire Associates, as Buyouts reported.

The investment committee meeting has been postposed until April due to the coronavirus pandemic.

CalPERS declined to comment for this story. No CalPERS board members responded to requests for comment.

Action Item: Read more about CalPERS’s private equity portfolio here.