CalPERS staff proposed a major temporary widening in policy ranges for its global equity, global fixed income, private equity and cash portfolios to compensate for turbulent markets. At the same time, staff has asked the investment committee for permission to conduct a new asset allocation study early in 2009, well ahead of its normal triennial schedule.
Staff of the $179 billion California Public Employees Retirement System, Sacramento, recommended increasing the policy range for its $78.8 billion global equity program to plus or minus 15 percentage points from plus or minus five percentage points around a 56% policy target. Similarly, the $41 billion global fixed-income program would see its range extended to plus or minus 15 percentage points, up from five points on either side of the 19% target allocation.
For the $26.1 billion private equity portfolio, the range would be upped to plus or minus eight percentage points from plus or minus three percentage points around the 10% target. Meanwhile, the fund would allow cash to go up to 10% of total assets; the current cap is 2% of assets. CalPERS has sold equities to meet liquidity needs; as of Oct. 31, 8.6% of assets were held in cash, according to a staff memo to the board.
In the memo, CalPERS staff said the recommendations were made to adjust for the existing market environment where there is limited flexibility to manage the asset allocation relative to existing policy targets and ranges. The range increases would last until the asset allocation review was completed next year.
Staff also requested a complete review of its policy asset mix, even though the last one was adopted just a year ago. Michael C. Schlachter, managing director and principal at consultant Wilshire, wrote in a Dec. 1 letter to Anne Stausboll, CalPERS interim CIO, that if the stock market and real estate market had increased in value 40% over the past year, no one would be requesting a new study, and so we believe that a market decline of similar magnitude should not drive the need for a new study.
The investment committee will review the recommendations at its Dec. 15 meeting.