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CalPERS reduces global, private equity allocations, expands tobacco investments ban

CalPERS disclosed Monday that the investment committee of the Sacramento-based pension fund cut its target global equity allocation by 5 percentage points to 46% while also reducing the private equity allocation to 8% of the total portfolio from 10%.

Also, on Monday, by a 9-3 vote, the investment committee approved a measure to increase the ban on investing in tobacco-related stocks to more than $500 million invested in externally managed funds.

By approving the measure, introduced by state Controller Betty Yee, the board decided not to vote on a staff resolution to reinvest in tobacco stocks. The investment committee has banned investments in tobacco stocks since 2001. But a report by CalPERS' general investment consultant, Wilshire Associates, has concluded the pension fund had lost more than $3 billion in investment gains between 2001 and June 30 by excluding tobacco stocks from their passive equity investments. The latest measure effectively extends the ban to active managers.

Anti-smoking advocates had slammed the pension fund for considering reversing the ban, noting that CalPERS also provide health benefits for the more than 1 million people covered under the plans.

In regard to the asset allocation changes, Chief Investment Officer Theodore Eliopoulos said the global equity cuts were made in closed session at the California Public Employees' Retirement System's investment committee meeting on Sept. 19 and were designed to reduce the risk of the portfolio. He said the private equity cut, also made at the meeting, reflected the market conditions in private equity. He did not go into further detail.

To offset the equity cuts, the $303.6 billion pension fund is increasing its target allocations to inflation-sensitive and liquidity by 3 percentage points each to 9% and 4%, respectively. It is also boosting the real assets allocation to 13% from 12%.

CalPERS officials previously said they are finding it difficult to find suitable private equity investments, given high valuations of portfolio companies that are targets of private equity buyout funds. CalPERS has $24.1 billion invested in private equity and more than $13 billion in dry powder, money it has allocated to funds but that has not been deployed.

CalPERS data as of Oct 31, the latest available, show that global equities made up 46.1% of the portfolio and private equity 8.4%. It is unclear if the allocations have been reduced since then.

Mr. Eliopoulos said the new allocations will remain in effect through early 2018, when CalPERS is scheduled to complete a revised asset allocation.

CalPERS' finance and administration committee is expected to make a recommendation Tuesday as to whether the pension fund's rate of return should be reduced from its current 7.5%.

Investment committee member J.J. Jelincic Monday made a motion after Mr. Eliopoulos' disclosures to open transcripts of the September committee session so members of the public could understand the rationale for reducing global equity and private equity asset allocations. But Mr. Eliopoulos said he would want to review the transcript before making it public.

A vote was never taken. Instead, investment committee Chairman Henry Jones directed Mr. Eliopoulos to meet with CalPERS legal staff to see what might be able to be made public.