Calpers’ appetite for risk
Claudia Parsons of Reuters and Calpers Chief Investment Officer Joe Dear discuss the pension fund’s appetite for risk on CNBC, after a Reuters investigation into how Calpers is delving further into alternative investments despite suffering heavy losses.
More on Calpers:
How much risk should pensioners accept?
Calpers, the California Public Employees Retirement System, manages about as much money the gross domestic product of Israel – around $200 billion at the latest count.
The long term financial security of 1.6 million people, from firefighters to janitors and judges, depends on Calpers getting it right.
America’s biggest pension fund, Calpers built up a gold plated reputation over the decades, founded on steady returns combined with a willingness to pioneer new investments and police public companies as an activist shareholder.
But in an embarrassing reversal of fortune, it said this month it was probing fees paid by outside money managers to win its business, expanding a review of “pay-to-play” schemes at public retirement systems that has spread across the nation.
Corruption, if it happened, is bad enough. But Reuters has been investigating whether pensioners and state workers in California should be equally worried about the fund’s perfectly legal activities.
In the past decade, Calpers has diversified its asset allocation from a portfolio that was almost entirely stocks and bonds into one that also has substantial chunks of money invested in private equity, real estate and inflation-linked assets – a category that includes commodities, infrastructure and forestry.
Just as Fed was unable to see what was in store for the economy, its acceptable that CalPERS also missed it.
What I’m wondering is the decision to lower the asset allocation mix from 56% to 49% on the global euqity asset class (as per the latest allocation figures). Wouldn’t be a good idea to buy equities considering the valuation gloablly is at much reasonable that what it was in 2007? Therefore aiming for a good return when the market bounce back?
Decision to hike the private equity to 14% from 10% looks sounds to be like a pension fund transforming to a hedge fund. Are we loosing the distinction between a pension fund and a hedge fund?
