CalPERS sets investment strategy

The $206 billion California Public Employees’ Retirement System (CalPERS) set its investment strategy roadmap for 2010 at a board offsite last week, as chief investment officer, Joe Dear, attributes strong gains in 2009 to a “sharpened investment focus”.

The fund earned 11.8 per cent for the 2009 calendar year with its global equity portfolio, which accounts for just over half the fund, the largest contributor with a 35 per cent overall return.

International equities including emerging markets returned more than 43 per cent, while domestic equities returned 28 per cent.

“Last year was a wild ride for all investors, but we finished very strong,” Dear said. “We sharpened our investment focus, looking at our portfolio from top to bottom. Now we’re in a strong position to take full advantage of any financial upturn in 2010.”

As a result of poor returns in real estate and private equity ” real estate fell 47 percent for the first nine months of the year ” the fund is reviewing its investments and relationships.

“We took some very tough medicine in real estate last year,” Dear said. “But our team is making sure we apply the lessons we learned. We’re aggressively examining our portfolio and getting rid of the investments that don’t meet our expectations. We believe there will be some real opportunities to invest in income-generating properties at good discounts. I’m very excited about our potential and the moves we can make.”

CalPERS also is realigning its relationships with its private equity partners, cutting fees and evaluating managers it will continue to do business with.

For the calendar year 2009 the fund’s fixed income portfolio returned 14 per cent, and inflation-linked assets, which includes infrastructure, commodities, inflation-linked bonds and forestland, returned 5 per cent.

The fund’s board recently completed a three day offsite in the Napa Valley with the investment strategy for the year a key agenda item.

The board also reviewed due diligence processes in investment decision making and held a risk management workshop.

CalPERS Target Asset Allocation

Asset Class Target Allocation

Cash equivalents  2.0%

Global fixed income  20.0%

Equities

Alternative

Investment

Management (AIM) 14.0%

Global equities  49.0%

Total equities  63.0%

Real Estate  6.9%

Inflation linked  5.0%