The California Public Employees' Retirement System has quietly started a program aimed at doubling down and reaping more profit from public companies it is engaging on environmental, social and governance issues.
Anne Simpson, senior portfolio manager and director, corporate governance, of the $253.2 billion Sacramento-based pension fund, said the initiative involves buying additional shares of stock of companies in which CalPERS already invests through its internally managed indexed equity portfolio.
The additional shares will be actively managed by CalPERS' investment staff in a concentrated portfolio.
“It's an important signal to the market that we believe in this, we have conviction,” said Ms. Simpson, referring to officials' belief that they can earn additional returns through stock picking among the companies CalPERS engages.
Lev Janashvili, managing director of corporate governance research firm GMI Ratings in New York, said he believes CalPERS is the first pension fund to build a separate portfolio — beyond indexed positions — of companies it has engaged.
“We have not seen anything like this with a public face,” Mr. Janashvili said. “It seems pretty simple and pretty sensible.”
Ms. Simpson would not disclose specific positions CalPERS has taken or how much money CalPERS has allocated to the program, saying that information is market sensitive. The program was approved by the pension fund's investment committee behind closed doors in August. It was publicly disclosed at a CalPERS board meeting in November.
She said CalPERS expects its engagement to drive up stock prices. “We call this monetizing our company focus list,” she said.
A CalPERS official, familiar with the program but who did not want his name used, said the fund plans to allocate $50 million a year indefinitely to the concentrated portfolio, dividing the money among five to 10 companies each year.
The source said the CalPERS board and staff would review the program periodically and if it is successful could increase the annual allocation to $100 million or more. The source said it was not inconceivable the portfolio could grow to $1 billion or more over time.
“We view it as a deep-value portfolio, buying shares of stock of underperforming companies that can grow under our engagement,” he said.