CalPERS considers sub-asset class targets for alternatives

If adopted, the $235bn pension system would place most of its alternative investments in buyout funds, with an additional 30% in credit related investments and growth/expansion funds.

The California Public Employees' Retirement System is considering adding target allocation ranges for different types of private equity investments to its Alternative Investment Management (AIM) Program, according to documents from the $235 billion pension.

The Board of Administration Investment Committee’s policy subcommittee considered several changes to AIM at its Monday meeting, the most notable of which is the inclusion of target allocations for the buyout, credit related, venture capital, growth/expansion and opportunistic sub-classes of alternative investments.

Buyout funds would receive the largest allocation at 60 percent of the programme’s $31.5 billion in private equity holdings. Credit related investments and growth/expansion funds would each have a 15 percent allocation, opportunistic funds would have a 10 percent allocation and venture would have a 1 percent allocation. Target ranges were also considered, according to staff recommendation documents.

The proposed changes are part of an overall shift in the way the pension treats asset class allocation. CalPERS announced last year it would classify its investments into five major groups according to how they function in high- or low-growth markets and the prevailing inflation environment. Private equity was classified with public equity in a “growth” group, which accounts for 63 percent of the investment portfolio.

In addition to adding strategy allocations to the program, CalPERS staff also recently recommended changes to define the objective of the AIM to be congruent with the one outlined during an asset and liabilities management workshop held in November 2010, which is delineated as: “To maximize risk-adjusted rates of return while enhancing the CalPERS position as a premier alternative investment manager is the strategic objective of the Program.” Staff also recommended that the board make changes to language in the program’s benchmark policy.

Earlier this month, California Governor Jerry Brown signed legislation that bans board and senior-level staff members of the $218 billion California Public Employees’ Retirement System and the $161 billion California State Teachers’ Retirement System from accepting compensation for providing services as a placement agent for a period of 10 years after leaving the pensions.