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CalPERS to Vote on Plan to Combine Portfolio Segments

The investment committee of the largest pension fund in the U.S. will decide whether to combine private and public equity investments.

  • Sheila Dang

The California Public Employees’ Retirement System will propose next week a plan to merge several portions of its investment portfolio to increase efficiency following a leadership change in its private equity program earlier this month.

CalPERS staff will ask the investment committee to combine private equity investments with global equity and adopt the FTSE All-World Index as its benchmark, according to agenda items released ahead of the April 17 meeting. This will consolidate the growth-related segments of the pension’s equity portfolio, the staff presentation stated.

CalPERS, the largest pension fund in the U.S., currently allocates 8 percent of its $315 billion in assets to private equity. Merging the segment with global equity would create a growth segment that represents 54 percent of CalPERS’ portfolio.

The recommendation follows the departure of Réal Desrochers, CalPERS’ former managing investment director of the private equity program, on April 5. Under Desrochers’ leadership, the fund streamlined the number of managers it works with, according to a CalPERS press release. Investment Director Sarah Corr has taken over as interim head of private equity.

The CalPERS presentation pointed to three of the fund’s peers that also consolidate public and private equity: the Ontario Teachers’ Pension Plan, the Canadian Pension Plan Investment Board, and the New Zealand Superannuation Fund.

In addition, the pension fund’s staff will propose combining real estate, infrastructure, and forestland into one real asset class that will comprise 13 percent of the portfolio. This will bring the segments, which have similar investment characteristics, under one umbrella and build a common focus for the real assets team, according to the agenda item. CalPERS defines the role of the real asset class as a segment that aims to “act as an economic diversifer to equity risk.”

Under the proposed structure, CalPERS’ allocation to global fixed income will remain at 20 percent, while commodities and inflation-linked bonds will represent 9 percent. Liquid short-term securities will also stay at 4 percent of the portfolio. The investment committee will vote on the proposals in May, according to the staff’s timeline.