CalPERS staff proposed starting a $100 million internally managed active currency overlay program, following two years of discussion. The funding source hasn't been determined, said Eric Busay, portfolio manager, global fixed income, for the $210 billion pension fund.
Staff currently manages a $3.1 billion passive overlay strategy that has added 43 basis points from trading since it started in 2001. Another $7.6 billion is managed by external currency managers. The idea would be to exploit short-term inefficiencies in currency markets created by central banks, hedgers and others exchanging currencies for non-investment reasons. Consultant Wilshire Associates endorsed the proposal.
In another development, staff is resisting pressure to divest holdings of companies doing business in Sudan, instead suggesting the fund adopt a seven-point statement favoring constructive engagement with such companies.
"CalPERS believes that constructive engagement is the most powerful tool investors can use to effect change at those portfolio companies whose corporate governance, social or environmental practices could lead to value destruction," the proposed statement reads. "Divestment is a tool that must be used sparingly and in unique circumstances."
The investment committee will meet May 15 to review the staff recommendation.