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

Timing: Allow around 45 minutes for this activity.

Now look at the web site of CalPERS (California Public Employee Retirement Scheme) [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] , 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.

Download this video clip.Video player: b861_2016e_vwr026-320x176.mp4

Show transcript|Hide transcript

Transcript

[MUSIC PLAYING]

BOB BURTON

Welcome once again to Insight, a programme designed to keep you up-to-date on CalPERS issues. Each year, chief executive officers of organisations from around the world are gathered for a unique opportunity to share their vision. They're brought together by the Committee Encouraging Corporate Philanthropy with the goal of promoting corporate progress on societal challenges while at the same time driving business performance.

CalPERS CEO, Ann Stausboll, recently took part in that New York City roundtable. And she's here to fill us in on what was shared at the event. Ann, welcome back to Insight.

ANN STAUSBOLL

Thank you, Bob.

BOB BURTON

The organisers of the roundtable tended to position you as a CEO who encourages long-term thinking. Why is long-term thinking so important to CalPERS?

ANN STAUSBOLL

Well, CalPERS, our mission is to provide pension and health benefits for a million and a half members and their families. I think of CalPERS as a perpetuity. We have long-term obligations for many generations to come. So we think long-term in everything that we do.

Our actuaries think out 50 to 60 years. If you think of a career as about 30 years and then retirement as 25 to 30 years, that's 50 to 60 years. Our investors think long-term. They think in terms of a market cycle, which is 5 to 10 years.

So long-term thinking is ingrained in everything we do. Sustainability is at the heart of our pension and health programmes. It's at the heart of our investment portfolio. And it's at the heart of the companies that we invest in.

On the health side, we also care very deeply about wellness. We think that healthy communities are part of sustainability. And then sustainability is part of our own internal operations.

Our workforce has values around wellness, balance, environmental issues, and sustainability. So it's really ingrained in everything that we do.

BOB BURTON

Including, of course, our investment perspective. So when you reach out proactively and you engage companies that we may invest in from an environmental or societal or government standpoint, what do we say in those conversations? And what do we expect to happen as a result?

ANN STAUSBOLL

So those engagements are really guided by one of our investment beliefs that the board adopted last August. And one of those beliefs is that long-term value creation requires attention to three forms of capital, financial capital of course, human capital, your labour force, your supply chains, and then physical capital, which includes environmental issues, attention to our precious, natural resources.

So when we talk to companies, we want to make sure that their boards are paying attention to those global very important issues and that they are having oversight over those issues. So we ask boards and the companies that we meet with, for example, does your board have a committee on sustainability? Is sustainability something you talk about in your risk management committee?

Do you hold your CEO and your executives accountable for sustainability? Is executive compensation tied to those important sustainability issues? So those are the types of things that we talk about with companies.

BOB BURTON: Those are really your role in sustainability.

ANN STAUSBOLL

Yes.

BOB BURTON

Along with your theoretical approach to how to pursue sustainability, for example, comes your personal approach as a chief executive officer. How would you describe your personal approach?

ANN STAUSBOLL

I have a lot of conviction and passion around these issues. I feel it's really important to share that internally with our own workforce as well as those we work with outside of CalPERS. I really want every employee who works here at CalPERS to understand how important our work is and how everything that we do at CalPERS really ties to providing these long-term benefits for our members.

BOB BURTON

Well, now I'd like to do a little distraction and a little show and tell. You had a unique opportunity at the stock exchange recently during your trip to New York. Tell us all about that.

ANN STAUSBOLL

Well, it was a wonderful opportunity. I got to ring the closing bell at the stock exchange earlier this week.

BOB BURTON

What was going through your mind as you were standing up there on that balcony?

ANN STAUSBOLL

It was a little nerve-wracking, Bob. The bell gets rung at 4 o'clock. And I didn't get my instructions until 3:57.

BOB BURTON

Pressure.

ANN STAUSBOLL

A little pressure, yes. An interesting thing is we all call it ringing the bell but it turns out that it's really ringing a buzzer or oppressing a buzzer.

BOB BURTON

Ah-ha. Well, you looked pretty excited up there like you were having a great time.

ANN STAUSBOLL

It was a great time. And it was really an honour to be able to do that on behalf of this great institution.

BOB BURTON

Well, it's always an honour to have you back here for our little Insight chats. Thank you again, Ann, for being here.

ANN STAUSBOLL

Thanks, Bob.

BOB BURTON

You've been watching Insight, conversations with CalPERS leaders. Our guest today was Ann Stausboll, CalPERS chief executive officer. Join us again soon for more Insight.

[MUSIC PLAYING]

End transcript

Download

 

Interactive feature not available in single page view (see it in standard view).

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

To use this interactive functionality a free OU account is required. Sign in or register.

Interactive feature not available in single page view (see it in standard view).

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 web site.

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

Source: https://www.calpers.ca.gov/index.jsp?bc=/investments/assets/assetallocation.xml

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.