Issues Update
Follow CalPERS review of asset allocation, rate of return
May 10, 2010
CalPERS is planning a top-to-bottom review of how the assets in the fund are allocated — the percentage invested in stocks, bonds, real estate, private equity, cash and other investments. This full asset allocation review is conducted every three years — and setting these targets is the most important step in determining the success of CalPERS investments.
As part of the review, CalPERS will examine the assumed rate of return — the rate necessary to pay future pension benefits to CalPERS members. The assumed rate of return is now set at 7.75 percent, a figure CalPERS has achieved over the 20-year period ending Dec. 31, 2009.
The question that CalPERS faces, now, though is whether the historic economic upheaval of the past few years has dramatically altered long-held assumptions about investing in the world’s financial markets. Are investors in for a sustained period of meager or below-average market growth? Or will the traditional business and economic cycles – the ones investors have grown accustomed to over the past couple of decades – return?
Over the next several months, CalPERS staff and the CalPERS Board will reach out to a wide-ranging group of experts with varied opinions on asset allocation and the assumed rate of returns. In July, many will present their views to the Board at its off-site meeting. In November, the Board will hold a two-day asset/liability management workshop on the issue, and the following month will formally approve the recommended asset allocation mix. The assumed rate of return will be considered in February 2011. View timeline
This nearly yearlong fact-finding mission, says Joe Dear, CalPERS Chief Investment Officer, will involve “fearless research, robust debate and sound judgment.”
“I want to be as thoughtful as we can possibly be when we consider what the longer term investment environment is going to be like and how we want to position our portfolio,” Dear told the Board at its February meeting. “We want to be as open and as transparent as we can be, to challenge our assumptions, to listen to contrasting views and to apply the lessons we have learned so we can arrive at a well-considered decision.”
CalPERS is planning a top-to-bottom review of how the assets in the fund are allocated – the percentage invested in stocks, bonds, real estate, private equity, cash and other investments. This full asset allocation review is conducted every three years – and setting these targets is the most important step in determining the success of CalPERS investments.
As part of the review, CalPERS will examine the assumed rate of return – the rate necessary to pay future pension benefits to CalPERS members. The assumed rate of return is now set at 7.75 percent, a figure CalPERS has achieved over the 20-year period ending Dec. 31, 2009.
The question that CalPERS faces, now, though is whether the historic economic upheaval of the past few years has dramatically altered long-held assumptions about investing in the world’s financial markets. Are investors in for a sustained period of meager or below-average market growth? Or will the traditional business and economic cycles – the ones investors have grown accustomed to over the past couple of decades – return?
Over the next several months, CalPERS staff and the CalPERS Board will reach out to a wide-ranging group of experts with varied opinions on asset allocation and the assumed rate of returns. In July, many will present their views to the Board at its off-site meeting. In November, the Board will hold a two-day asset/liability management workshop on the issue, and the following month will formally approve the recommended asset allocation mix. The assumed rate of return will be considered in February 2011.
View timeline
This nearly yearlong fact-finding mission, says Joe Dear, CalPERS Chief Investment Officer, will involve “fearless research, robust debate and sound judgment.”
“I want to be as thoughtful as we can possibly be when we consider what the longer term investment environment is going to be like and how we want to position our portfolio,” Dear told the Board at its February meeting. “We want to be as open and as transparent as we can be, to challenge our assumptions, to listen to contrasting views and to apply the lessons we have learned so we can arrive at a well-considered decision.”
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