The California Public Employees’ Retirement System (CalPERS) Board of Administration has voted to adopt a modest revision to its asset allocation mix that better reflects the system’s current investment holdings in an effort to reduce risk and save on transaction costs.
The revised asset allocation mix calls for a 1% increase in both the pension fund’s US and international equity portfolios and reduces by 1% each CalPERS’ private equity and real estate programs.
The slight change will prevent the fund from paying high transaction costs to continually rebalance its investment portfolio and keeps its performance from diverging too far from its benchmark.
“We are in a seller’s real estate market and there are opportunities for us to prune our portfolios and take some profits,” says Sean Harrigan, president of the CalPERS board. “This, combined with the increase in our stock portfolios from the market rebound requires us to make some minor allocation changes to keep our portfolio in check.”
But the group stresses that the change does not represent a negative outlook for real estate and private equity markets.
“Investors should not misinterpret this action as a withdrawal from real estate and private equity,” says Rob Feckner, chair of CalPERS Investment Committee. “It is a reflection of the success of our real estate and private equity programs to take profits and reallocate assets to other parts of our portfolio. We are fully confident in these programs and are giving our staff greater flexibility to take advantage of future market opportunities.”
Under its revised policy, CalPERS will shift its target asset allocation for real estate from 9% to 8 % of the system’s assets. The pension fund’s private equity investments will move to 6% from its previous target of 7%.
The move marks the first shift in asset allocation for CalPERS since October 2002. The CalPERS board also voted to review its asset allocation once every three years in the future.