US - The US$182bn California Public Employees' Retirement System (CalPERS) investments in emerging market debt will hinge on ratings issued by major credit ratings agencies under a new policy adopted by the fund.
CalPERS’ will rely on information from Moody’s, Standard & Poor’s and Fitch ratings agencies, which look at country economic factors as well as political risk, transparency and labour practices in evaluating credit risk.
The pension fund will require a minimum rating of BBB- for its investments in debt issued by national governments in their local, emerging markets, and in any debt of emerging market subnational governments and corporations. For debt of these countries’ national governments issued in developed markets, the minimum rating must be BB-.
“The use of credit rating systems is an effective and sound process for investing in foreign debt because ratings reflect a full evaluation of countries’ sovereign risk,” said Rob Feckner, president of the CalPERS Board of Administration.
The fund said reliance on the ratings agencies would also provide advance warning to countries of falling off its debt list, since the ratings-based process takes into account agencies’ watchlists and market outlooks.
Under the policy, CalPERS managers will be able to invest in global debt issued by the national governments in China, Colombia, Egypt, Indonesia, Morocco and Russia - none of which qualify for emerging market equity investments.
Separately, the fund has established a pool of five investment advisers for its second manager development programme, designed to recruit emerging money management firms.
The pool includes Strategic Investment Management, Progress Colchester Ventures, The Rock Creek Group, Bear Stearns Asset Management and Legato Capital Management, who will help the fund with due diligence, selection and performance monitoring of emerging stock, high yield and hedge fund-of-fund managers.
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