CalPERS Invests $1B in ESG Global Equity Portfolio

Another $260 million invested in synthetic equity portfolio.

The California Public Employees Retirement System (CalPERS) has invested $1 billion in a new internally managed environmental, social, and governance (ESG) global equity portfolio and added another $260 million to a second internally managed $7.5 billion synthetic equity portfolio, showed documents presented at the system’s investment committee meeting on April 16.

While CalPERS Chief Investment Officer Theodore Eliopoulos has rejected overall portfolio tilts in the $350.9 billion retirement plan’s portfolio, the new ESG investment portfolio is an attempt to use such factors in a very small slice of the CalPERS portfolio.

The documents show that the new ESG portfolio was funded in February 2018 and its investment methodology was developed by investment advisory firm QS Investors of New York, New York. CalPERS entered into a five-year contract, without competitive bidding, for QSI to develop the strategy, details a CalPERS internal analysis in April 2017 of investment costs.

The value of the contract CalPERS is paying QSI could be more than $1 million per year over a five-year contract period, the CalPERS analysis shows.

Eliopoulos told an investment committee meeting in June 2017 that the retirement plan had rejected overall portfolio tilts on ESG factors because of the inconclusiveness of studies in terms of ESG adding value to the CalPERS portfolio. But Anne Simpson, CalPERS investment director, sustainability, told CIO that CalPERS was exploring various portfolio tilts for its ESG program. She did not offer specifics and, on Monday, neither did CalPERS spokeswoman Megan White.

The $260 million added to CalPERS synthetic equity portfolio will expand what has been one of the pension plan’s most successful equity strategies. CalPERS data shows that the synthetic portfolio, which uses future contracts, derivatives, and other instruments, had a 24.42% return in the one-year period ending Dec. 31, beating its custom benchmark by 120 basis points.

On a five-year annualized basis ending Dec. 31, it produced an annualized rate of return of 16.81%, 129 basis points above its custom benchmark.

Almost 80% of CalPERS $200 billion global equity portfolio is internally managed. This includes index strategies, enhanced index strategies, and active strategies.

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