US - Staff at the California Public Employees' Retirement System have proposed new portfolio benchmarks to reflect the risk-based asset allocation approved in December.
In a staff memo to the investment committee, staff provided details of new benchmarks for the growth, real asset, inflation-linked, income and liquidity portfolios that now make up CalPERS' $234bn investment portfolio.
CalPERS' risk-based allocation earmarks 63% of assets to growth assets like public and private equity. About 77% of the growth assets will be in public equities benchmarked completely to the FTSE All-World Total Market index. Two-thirds of the private equity investments will be benchmarked against the FTSE US Total Market index, one-third against the FTSE all-world ex-US and will aim to add 3% over its benchmark.
CalPERS allots 16% to income assets. Ninety percent of those assets will be measured against a Barclays long liability benchmark with the rest up against a Barclays international fixed income benchmark.
Inflation and liquidity each receive 4% of the overall allocation. Inflation assets are benchmarked against a mix of a custom inflation linked bond benchmark and the S&P GSCI Total Return index. Liquidity assets will be measured 75% against Barclays Treasury two to 10-year bills, and 25% against one-month T-Bills.
Real assets, which make up 13% of the overall portfolio, will be measured partly against the NCREIF ODCE index and partly by the NCREIF Timberland index, both lagged by one quarter. The infrastructure portion will be measured against CPI plus 4%.
The fund's investment consultant Wilshire Associates, however, warned the timber and infrastructure benchmarks should be reviewed. Managing director and principal at Wilshire Michael Schlachter said in a note to the committee using the NCREIF index to measure timber changes the purpose of the asset class within the portfolio from inflation-protection to industry benchmark performance. Schlachter also said the CPI plus 4% figure for infrastructure could be too low as interest rates are expected to rise over the coming years.
"In this case, we believe that staff should also propose a level for interest rates at which we will return to the 5% hurdle or even increase to 6% or more," he wrote.
The changes need to be voted on at an investment committee meeting on 11 April.
Meanwhile, CalPERS plans to start an on-going search for new global equity managers. According to an agenda item, staff wants to look for "managers that best complement CalPERS existing Global Equity manager structure". CalPERS' global equity portfolio has $123.6bn in assets.
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