The board of the country’s largest public pension fund, managing $183 billion in assets, announced last week that it increased its target for corporate buyout and venture capital investments from 10% to 14%, with a range of 9% to 19 percent.
CalPERS spokesperson Clark McKinley says that the fund’s $22.8 billion of current private equity and venture capital investments currently represents 13% of the state pension fund’s total assets.
“[The raise in PE allocation] is not intended to be a long-range strategy, but reflects our preference for higher liquidity and moderate risk, as well as the flexibility to respond to challenges and opportunities in the markets,” says George Diehr, chair of the CalPERS investment committee, in a prepared statement. “Our investment officers will follow these guidelines as we position ourselves for short-term investment opportunities over the next year or so.”
Pension consultant Wilshire Associates had recommended that CalPERS have a 15% allocation to private equity, but the fund’s investment officers ultimately trimmed that target, according to a memo to CalPERS investment committee.
The CalPERS board also voted to increase the target allocation for global fixed income to 20% from 19 percent. It reduced global equity to 49% from 56% and raised its cash target to 2% from zero. Target allocations for real estate and inflation-linked assets were unchanged, at 10% and 5%, respectively.
Separately, CalPERS’ staff and its consultants have discussed creating an “opportunistic strategy” fund that would snap up assets knocked down by the credit crisis. If a subcommittee approves a policy for distressed investing, CalPERS’ full investment committee could vote on the new investment program on Aug. 17.
As corporate defaults soar and banks scramble to shed illiquid assets, CalPERS is mulling a plan for setting aside as much as 3% of total funds for distressed debt. That includes toxic securities, loans held by banks, mortgage-backed securities and bonds issued under the U.S. Term Asset-backed Securities Lending Facility (TALF). Funding for the distressed strategy may come at the expense of CalPERS’ stocks, debt or inflation-linked portfolios, according to a presentation made to CalPERS during an investment committee workshop in May.
CalPERS sets its investment targets every three years, and the current allocation plan expires in December 2010, the spokesperson said. CalPERS said it will do “a more thorough” asset allocation assessment next fall before setting targets for the next three years.