Stick with Pareto, SSgA, CalPERS staff says

CalPERS’ staff is recommending that Pareto and SSgA be rehired for one year as the $179 billion system’s currency overlay managers.

As of Oct. 31, Pareto and SSgA ran overlays of $2.5 billion and $2.3 billion, respectively, for the Sacramento-based California Public Employees’ Retirement System’s $35.9 billion international equity portfolio. Another portion is managed internally.

Separately, staff plans to revamp the program’s benchmark so it will permit alpha generation in all environments. Currently, managers are prohibited from hedging more than 100% of their portfolio, which prevents them from generating alpha when foreign currencies weaken against the dollar, according to a staff memo to the committee. Staff plans to adjust the managers’ benchmark, subject to approval of CalPERS’ investment policy subcommittee, to permit alpha generation in all market environments, the memo added.

CalPERS also committed $150 million to Carlyle Global Financial Services Partners, a new private equity fund that will target distressed sellers and divisional carve-outs in the financial services industry, such as banking, insurance, asset management, financial technology and consumer and commercial specialty finance companies.

The system’s investment committee also is expected to hire 14 firms to be placed on a preapproved list of inflation-linked asset consultants in three classes.

Consultants selected for infrastructure are Brock Capital Group, Capital Innovations, Cliffwater, Courtland Partners, Investors Diversified Realty, LP Capital Advisors, Magellan Asset Management, Meketa Investment Group, Pension Consulting Alliance, RV Kuhns & Associates and Wilshire Associates.

On the list for timber are Cortex Consultants, James W. Sewall Co. and ORG Portfolio Management. For commodities, Cliffwater, RV Kuhns and Wilshire were named.

The consultants will assist staff in areas including due diligence, portfolio assistance and research.

The committee will consider the recommendations at its Dec. 15 meeting.