CalPERS could have a new asset allocation every year instead of the current policy of every three years, Joe Dear, the system’s chief investment officer, said in an interview.
The $204 billion California Public Employees’ Retirement System, Sacramento, is conducting an internal review to determine if it should become a “more nimble” investment organization, Mr. Dear said.
“We have to be more flexible given market volatility,” he said.
CalPERS last did a full asset allocation review in 2007 and is now considering its 2011-2013 allocation. At a CalPERS investment committee workshop on May 17, Mr. Dear said he was concerned that market conditions are changing so frequently that relying on historical trends to determine asset allocation is not a sure thing.
“If that’s the case, then we have to develop a whole new capability of an organization to make judgments about the condition of asset prices, and to make asset allocation decisions in a much shorter time,” Mr. Dear said.
Mr. Dear said at the workshop that making more frequent asset allocation would require CalPERS’ investment staff to gain a lot more judgment about what’s happening in the markets. “And is it OK to just do a three-year asset allocation study and make tweaks in capital market assumptions and call it good?” he asked. “I think the answer to that is no; we've got to do better than that.”
Eric Petroff, director of research at Wurts & Associates, said he expects other pension plans would follow CalPERS’ lead if it went to an annual asset allocation review. Given frequent market changes, pension plans need to move faster determining their asset allocations, he said.
“The market should dictate the path of change in asset allocations, not an arbitrary time frame,” Mr. Petroff said.
CalPERS did alter its three-year allocation in June 2009 as the extent of its massive losses in the financial crisis became known. CalPERS increased its private equity target to 14% from 10%, and hiked global fixed income to 20% from 19%. It reduced global equity to 49% from 56% and raised its cash target to 2% from zero. Its 10% real estate and 5% inflation-linked assets targets were unchanged.