CalPERS' $5.3 billion emerging markets portfolio gave up 2.6 percentage points against fully discretionary portfolios run by its three active external emerging markets managers since the permissible list went into effect on Aug. 1, 2002. That equates to a $401 million opportunity cost during the period.
From Aug. 1, 2002, through Dec. 31, 2006, AllianceBernstein's portfolio returned 36.4%, 3.3 percentage points below its unconstrained return. Genesis Asset Managers returned 30.7% for the same period, 6.2 percentage points below the manager's unconstrained portfolio. In contrast, Dimensional Fund Advisors' CalPERS portfolio returned 33.6%, beating its unconstrained portfolios by one percentage point. All the returns are annualized.
The $231.5 billion California Public Employees' Retirement System, Sacramento, is considering investing $300 million to $500 million in emerging markets corporate governance funds.
Staff hopes to earn an attractive risk-adjusted return and improve corporate governance practices at companies based in countries with substandard practices, a memo to the board said. The investments would not be limited to countries meeting CalPERS' eligible emerging markets standards.
Staff has held discussions with International Finance Corp. officials to see if the two institutions could jointly pursue such investments. Staff has also started researching the Asia Development Bank's corporate governance initiatives, but is interested in pursuing such strategies with other global investors, the memo said.
The staff plans to seek feedback from CalPERS' investment committee at its Feb. 20 meeting. If the response is favorable, staff would return with a specific proposal at a later date.
Separately, Sri Lanka will be dropped from CalPERS' list of eligible emerging markets, according to a draft report from consultant Wilshire Associates. CalPERS uses a seven-factor model of both country factors and market factors for evaluating emerging markets. Sri Lanka's ranking was dragged down by low scores for political stability and market regulation. CalPERS had $359,267 invested in Sri Lankan stocks as of June 30, according to spokesman Clark McKinley.