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The US$183 billion CalPERS board has made the first formal changes to its asset allocation
targets since January 2008, increasing exposures to private equity and cash,
and narrowing the discretionary ranges around all asset classes set in December
last year. The new asset allocation, which sees the target allocation for its
Alternative Investment Management (AIM) program, or private equity, increased from
10 to 14 per cent, global fixed income increased from 19 to 20 per cent, and
cash increased from 0 to 2 per cent, is a short-term adjustment to the
portfolio in the wake of the financial market crisis with the board planning to
follow it with a more full-blown asset allocation and liability analysis in
autumn next year.
It’s not the only reaction CalPERS is making to the financial
crisis – last month it filed suit against ratings agencies Moody’s, Standard
& Poors and Fitch, accusing them of issuing “wildly inaccurate and
unreasonably high” ratings on structured investment vehicles that may have lost
the fund as much as US$1 billion. According to George Diehr, chair of the
CalPERS investment committee, the asset allocation changes are not intended to
be a long-range strategy but reflect a preference for higher liquidity and
moderate risk, as well as the flexibility to respond to challenges and opportunities
in the markets. “Our investment officers will follow these guidelines as we
position ourselves for shortterm investment opportunities over the next year or
so,” he said.
In its investment committee meeting in June, the board also
formally reduced global equity from 56 to 49 per cent, with the target
allocations for real estate and inflation-linked assets unchanged, at 10 per cent
and 5 per cent, respectively. In addition the discretionary investment ranges
around the targets were narrowed for all asset classes mostly because of
declining market volatility and improving liquidity. It set ranges of plus or
minus 5 per cent around targets for global equity, AIM, fixed income and real
estate; and ranges of 2 to 5 per cent for inflation-linked assets and 0 to 5
per cent for cash.
In December CalPERS had previously set new discretionary allocations
around its policy targets expanding the range to plus or minus 15 per cent for
global equities and global fixed income, 8 per cent for AIM, 5 per cent for
real estate, 0-10 per cent for cash, and 0-5 per cent for inflationlinked assets.
The new discretionary targets reduce those ranges quite significantly,
particularly for global equities and fixed income. The pension fund plans to
follow up this mid-course adjustment with a more fullblown asset allocation and
liability analysis that is tentatively scheduled for autumn 2010 – and to take
effect in 2011 through 2013.
