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Asset allocation in investment
Asset allocation in investment

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

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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 ClassCurrent Allocation (%)Interim Strategic Target (%)2Actual Investment ($ Billions)
Public Equity52.5%51.0%$155.0
Private Equity10.6%10.0%$31.2
Real Assets10.2%12.0%$30.0
Real Estate8.7%10.0$25.6
Trust Level 31.7%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.