The $345.1 billion California Public Employees’ Retirement System (CalPERS) investment committee has voted on changes to its portfolio during a meeting held Monday, ratifying a portfolio that is largely similar to current allocations, after a review of four candidate portfolios.
The new portfolio has a 50% allocation to equities as compared to other options under consideration, which would have significantly increased allocations to fixed income. With the new portfolio, CalPERS will still increase its allocation to fixed-income to 28% up from 20%. Real assets, which includes real estate, infrastructure and timber investments, will keep its 13% allocation, while private equity remains at 8%.
“We’ve done significant analysis to get to this point,” said Henry Jones, chair of the Investment Committee, said in a statement. “After reviewing the Capital Market Assumptions, hearing from our stakeholders, and considering the recent change made last year in the discount rate, we feel that this portfolio represents our best option for success while protecting our investments from unnecessary risk.”
The vote largely went according to plan, based on documents released ahead of the meeting, which indicated support for maintaining the status quo, but there was one dissenting vote—J.J. Jelincic, who wanted the pension to take more risk in the portfolio. Jelincic said during the meeting that CalPERS could afford the risk because of its long-term investment horizon. By taking on more risk, CalPERS could have also raised its return expectation to 7.25% up from the 7% in the chosen portfolio. That move would provide some contribution relief to constituent cities and agencies, which have already complained loudly about rising premiums. However, some on the committee worried that Jelincic’s plan could leave the portfolio overexposed to equities in a downturn.
During the meeting, CalPERS CIO Ted Eliopoulos said he thought that the chosen portfolio offered a good balance and that the pension would be able to respond accordingly to changes in the market.
CalPERS reviews its asset allocations every four years to ensure alignment with the pension’s investment beliefs and to make sure that allocation targets are reflective of current market conditions.