CalPERS staff wants greater latitude in managing its $115 billion global equity portfolio. In a memo to the board, staff proposed establishing ranges for subasset classes, including a request for immediate permission to expand the fund's corporate governance investment program, which is bumping up against its 3% of global equities limit.
Staff proposed adopting both anticipated target ranges and broader ranges for subasset classes: 55% to 85% for passive, with a broad range of 50% to 100%; 10% to 30% for active management and enhanced indexation, with a broad range of zero to 40%; and 1% to 5% each for alternatives, including corporate governance, the manager development program and absolute-return strategies, with a broad range of zero to 16% for the entire group.
"As the equity asset class has grown to over $115 billion, seeking approval for specific dollar amounts is no longer efficient or practical," according to the memo from the staff at the $186.9 billion California Public Employees' Retirement System, Sacramento. Consultant Wilshire Associates Inc. endorsed the proposal.
Wilshire also recommended that CalPERS' managers be permitted to invest in Chinese and Russian stocks that are sold in form of American Depository Receipts and Global Depository Receipts, even though those countries do not qualify for investment under CalPERS' permissible emerging markets policy. In a preliminary proposal, Wilshire noted that 71% of Chinese stock market capitalization and 31% of the Russian market cap trade in depository form, which must meet stock exchange standards for transparency, financial strength and accounting soundness.
Separately, CalPERS staff suggested that corporate directors be elected by majority vote, replacing current corporate practice, whereby directors need only a plurality to win. If adopted by individual companies or individual states, majority votes would give far more muscle to institutional efforts to withhold votes for corporate directors, potentially avoiding costly proxy campaigns. Building trades unions, led by the United Brotherhood of Carpenters, have submitted 81 proxy proposals on the subject this year, said Ed Durkin, director of corporate affairs for the carpenters' union. Proposals at 11 companies were recently withdrawn when those firms agreed to study the issue with unions in a working group. The council might support the majority vote policy, said Elliot Schwartz, research director for the Council of Institutional Investors. Majority vote is "the next best thing" to access to the proxy, Mr. Durkin said.
The staff proposals will be considered by the CalPERS investment committee on March 14.