By Dale Kasler
Published: Saturday, Aug. 23, 2014 – 12:00 am
CalPERS, still feeling the effects of the 2008 financial markets crash, is working to dial back the risk in its investment portfolio.
The changes figure to be incremental and won’t constitute a sweeping flight to safety.
The nation’s largest public pension fund has reduced its holdings in hedge funds in recent months and is examining whether it should pare back its investments in commodities and possibly other asset classes. The CalPERS investment staff is discussing the changes internally and could make some recommendations to the pension fund’s governing board this fall.
The discussions came in response to requests by board members in recent months for ideas to make the CalPERS portfolio less prone to severe downturns. Henry Jones, chairman of the fund’s investment committee, said last week that CalPERS is trying to find “risk mitigators.”
The move toward safety isn’t especially new. After losing billions on the housing market in 2008 and 2009, CalPERS weeded out some of the riskier investments in its real estate portfolio. Earlier this year, the fund adopted a new asset-allocation formula that puts more emphasis on bonds at the expense of stocks, which are more volatile.
CalPERS can’t run away from risk entirely, officials acknowledge. The California Public Employees’ Retirement System has set a goal of earning 7.5 percent a year on its investments in order to pay for the pension benefits promised to some 1.6 million Californians, and it can’t achieve those kinds of returns without taking chances.
“We end up having to have sort of a risk-seeking portfolio,” said Eric Baggesen, CalPERS’ senior investment officer for asset allocation and risk management, in an interview last week.
CalPERS earned 18.4 percent in the fiscal year that ended June 30, thanks largely to big returns in the stock market and private equity.
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