“In hedge funds the idea of better alignment of terms, greater transparency and flexibility to move our funds was something they understood. We don’t begrudge a manager making a lot of money, as long as we do, too, at the same time.” Now he says there is more that can be done in private equity. Private equity and infrastructure are two investment areas where CalPERS will focus in the future. “I hope to grow the size of the infrastructure team, but that will be another budget,” Dear says. The fund manages 70 per cent of its global equities and 95 per cent of its fixed income assets in-house, with the remainder being externally managed. “We won’t be developing inhouse standalone private equity or real estate functions, but we are building up our capacity for coinvestment and direct investment in infrastructure, and co-investment in private equity, so we’re trying to strengthen our capacity in those areas,” Dear says.

The fund recently announced it would take a 12.7 per cent stake in London Gatwick Airport. The $155 million investment is the first direct-style investment in its infrastructure portfolio, which makes up about 1.5 per cent of the total fund. Dear believes asset allocation is only part of the equation in good pension fund investment management, and the art of investing, through processes and judgment, needs attention in an activity that is not an exact science. “This is one of the arguments for a highly visible process, so that there’s lots of debate among staff, and with staff and the board, to try and get these issues out, so we do the art along with the science,” he says.

The fund has also revised its pay policy, so the board has some discretion to eliminate incentive payments in years of negative performance by the fund. Dear says this will help create greater incentive to collaborate between staff and the board. In July the board will hold an offsite with outside experts presenting new approaches to asset allocation practices, then conduct an asset/liability workshop in November. It is expected the investment committee will review and finalise new strategic asset allocation targets and ranges in December

Join the discussion