CalPERS staff plans to create a new internally managed domestic enhanced index equity portfolio that would use fixed-income securities as the alpha engine, if the systems investment committee gives the nod at its committee meeting on Aug. 18.
The $227.7 billion California Public Employees Retirement System, Sacramento, already runs a stock-based domestic enhanced index strategy, which uses stocks as the alpha engine and had $4.6 billion as of March 31.
The new strategy would include a fixed-income portfolio made up of short-term, high-quality asset backed securities, while a futures overlay would replicate the performance of the Wilshire 2500 index, according to a staff memo to the committee. The subprime crisis has led to discounts in the short-term fixed-income markets, creating an attractive environment for this type of strategy, reads the memo.
Funding could partially come from enhanced index equity assets that were brought in-house in January, said spokesman Clark McKinley.
If the investment committee shows interest in the new program, staff will present a formal request to create the portfolio at the Sept. 15 investment committee meeting.
Also on Aug. 18, the committee is expected to vote on the final draft of a new infrastructure policy. A draft was revised by the investment policy subcommittee in June to include wording that ensured no public-sector workers would lose their jobs as the infrastructure projects were privatized, provided CalPERS meets its fiduciary responsibility.
At least one professional organization is saying the policy did not go far enough and is threatening to sue CalPERS if further protection against the loss of jobs is not added into the policy. Bruce Blanning, the executive director of Professional Engineers in California Government, Sacramento, said discussions with CalPERS staff have been moving in the right direction.
Mr. McKinley declined to comment on the potential lawsuit.