The board of the country’s largest public pension fund, managing $183 billion in assets, announced on June 15 that it increased its target for corporate buyout and venture capital investments to 14 percent from 10 percent, with a range of 9 percent to 19 percent. CalPERS spokesperson Clark McKinley said the fund’s $22.8 billion of private equity and venture capital investments currently represents 13 percent of the pension’s total assets.
“This 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,” said 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 consultants Wilshire Associates had recommended that CalPERS have a 15 percent allocation to private equity, but the fund’s investment officers ultimately trimmed that target, according to a memo to CalPERS investment committee.
The board also voted to increase the target allocation for global fixed income to 20 percent from 19 percent. It reduced global equity to 49 percent from 56 percent and raised its cash target to 2 percent from zero. Target allocations for real estate and inflation-linked assets were unchanged, at 10 percent and 5 percent, respectively.
Meanwhile, CalPERS’s 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’s full investment committee could vote on the new investment program on August 17.
As corporate defaults soar and banks scramble to shed illiquid assets, CalPERS is mulling a plan for setting aside as much as 3 percent of total funds for distressed debt. That includes toxic securities and loans held by banks, mortgage-backed securities as well as bonds issued under the U.S. Term Asset-backed Securities Lending Facility, or TALF. Funding for the distressed strategy may come at the expense of CalPERS’s 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.