CalPERS' investment staff has concluded it is not feasible right now for the pension fund to switch its benchmark on its roughly $135 billion global equity portfolio.
The disclosure came Tuesday morning as staff and board members studied asset allocation changes for mid-2014 through mid-2017 at the $274.8 billion California Public Employees' Retirement System, Sacramento.
The pension fund's investment officials explored switching from the FTSE All-World index, which covers around 10,000 securities, to a low-volatility index. The problem is that investment staffers can't find a suitable low-volatility index, said Eric Baggesen, senior investment officer, asset allocation and risk management at an investment committee workshop. Mr. Baggesen said CalPERS could ask FTSE to develop a custom benchmark, but the pension fund needs to study further what parameters that benchmark would likely cover. Mr. Baggesen said CalPERS will continue to study the matter, but it is not realistic for an index change to occur for the 2014-2017 cycle.
Separately, investment staffers are also recommending that CalPERS' 4% liquidity allocation should be reduced to 2% in the next three years. Mr. Baggesen said the target allocation to the liquidity asset class was increased after the financial crisis, but he said staff members think that is no longer necessary because of stronger internal controls, a smaller security lending program and a large surplus of undrawn money allocated to private equity.
The investment committee is scheduled to make a decision Dec. 16. However, CalPERS officials discussed the possibility Tuesday morning of moving that final decision to the February investment committee meeting. No decision has been made on switching the date.