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CalPERS’ investment staff proposes structural changes for real assets portfolio

Group also proposes changes to benchmarks for real assets, private equity

CalPERS' investment staff is proposing major revisions to the structure and benchmark of its real assets portfolio and a new benchmark for its private equity portfolio, according to agenda materials for the $311.8 billion pension fund's investment committee meeting scheduled for April 17.

In the $33 billion real assets program, the investment staff is proposing that real estate, infrastructure and forestland be consolidated into one reporting portfolio instead of three different portfolios under real assets.

The real estate program makes up the bulk of the assets within real assets, with $27.9 billion, followed by infrastructure with $3.1 billion and forestland with $2 billion.

The consolidation would build “a common focus” for the real assets team, the agenda materials said. Under the plan, the current National Council of Real Estate Investment Fiduciaries' Open End Diversified Core Equity index benchmark would be replaced with the MSCI's IPD Property Fund index.

In private equity, the almost $26 billion program would share a benchmark with the $148 billion global equity program, the proposal said. The switch would “focus management of the allocation to private equity at the total fund level” and build “common focus for growth-oriented teams with the (investment office),” the materials said.

Currently, the California Public Employees' Retirement System, Sacramento, uses a custom benchmark for private equity consisting of the FTSE U.S. Total Market index and the FTSE All World ex-U.S. index, plus 300 basis points. The new benchmark would consist of the FTSE Global All Cap index customized for CalPERS to exclude board-directed divestments currently used for global equity, plus a yet-to-be-determined return premium.

CalPERS spokeswoman Megan White said no one from the investment staff would be immediately available to give more detail about the plan.

The revisions, which are part of a revamp of CalPERS' asset allocation, are scheduled to be approved along with a new asset allocation by the investment committee in February 2018.