◄Previous: 6.2 Alpha case study

# 6.3 CalPERS case study

This activity explores the long-term asset allocation strategy of a US public sector pension plan with an ethical stance.

## Activity 12 CalPERS asset allocation

Allow around 45 minutes for this activity.

Now look at the web site of CalPERS (California Public Employee Retirement Scheme), one of the largest investing institutions in the world. It is the public sector pension fund for the state of California with assets of around $300bn. In particular, look at their assets and their asset allocation strategy.

Watch the video of the CEO of Calpers on sustainability.

This browser does not support video playback.

Transcript

How does this compare with those of Yale and ‘Alpha’?

(A text entry box would appear here, but your browser does not support it.)

### Answer

CalPERS follows a strategic asset allocation policy that identifies the percentage of funds to be invested in each asset class. Policy targets are typically implemented over a period of several years on market declines and through dollar cost averaging. Listed below is CalPERS current asset allocation mix by market value and policy target percentages as of 30 September 2014. You will find a more up to date version when you access the website.

## Table 5: Allocation & Market Value by Asset Class

Asset Class | Current Allocation (%) | Interim Strategic Target (%)2 | Actual Investment ($ Billions)
--- | --- | --- | ---
Growth | 63.1% | 61.0% | $186.2
Public Equity | 52.5% | 51.0% | $155.0
Private Equity | 10.6% | 10.0% | $31.2
Income | 17.7% | 19.0% | $52.3
Real Assets | 10.2% | 12.0% | $30.0
Real Estate | 8.7% | 10.0 | $25.6
Forestland | 0.8% | 1.0% | $2.3
Infrastructure | 0.7% | 1.0% | $2.1
Liquidity | 1.9% | 2.0% | $5.5
Inflation | 5.4% | 6.0% | $15.9
Trust Level 3 | 1.7% | N/A | $5.0
Total Fund* | 100.0% | 100.0% | $295.0

Interim strategic targets adopted by the Investment Committee at the May 2014 Investment Committee meeting.

Trust Level includes: Absolute Return Strategy, Multi-Asset Class, and Overlay, Transition, and Plan Level. *Figures are rounded for viewing purposes.

CalPERS clearly has a growth strategy with a total of 63.1% targeted for equities (public and private) as well as over 10% in illiquid ‘real’ assets. Unlike ‘Alpha’, it is prepared to invest in illiquid assets and is also interested in sustainable investment.

CalPERS, unlike Yale, states that it has decided to move out of Absolute Return strategies, i.e. out of funds which aim to generate positive returns, regardless of the state of the stock market. This is presumably due to disappointment at the performance of this asset class.

CalPERS has a very long term investment horizon, as evidenced by its emphasis on sustainability.

◄Contents►Next: 7 Ethics and regulation

OpenLearn - Asset allocation in investment
Except for third party materials and otherwise, this content is made available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 Licence, full copyright detail can be found in the acknowledgements section. Please see full copyright statement for details.