CalPERS plans to double its maximum policy exposure to high-yield debt to $4 billion and to seek external managers to handle most of the expanded portfolio while it develops internal expertise in lower quality credits.
Staff and consultant Wilshire Associates recommend that the policy maximum be doubled to 10% of Sacramento-based California Public Employees Retirement Systems domestic fixed-income assets, adding up to $3.5 billion to CalPERS high-yield debt exposure. The $169 billion pension fund has only 1.5% of domestic fixed-income assets, or $557 million, in high-yield debt, and invests only in the higher credit quality segment of the market. All of those assets are internally managed.
A majority of that new allocation would be handed to external high-yield debt managers, which would invest in the full range of credits. Pending approval by the CalPERS investment committee, the fund would issue a questionnaire in May through InvestorForce.com to identify qualified firms; and an RFP would be issued in July. Finals are slated for December, with funding in February.
CalPERS goal is to develop internal capability to invest in the full range of high-yield credits over the next three years, in the belief that management costs would be only one-fourth of the 40 basis points pension fund staff and Wilshire expect to pay external managers. Any external managers would have to agree to enter into a strategic relationship with CalPERS, which would include training CalPERS internal analysts and providing research.