Managing Calpers Investments: Strategies For Success

California Public Employees' Retirement System (CalPERS) is the largest defined-benefit public pension in the U.S., serving over 2 million members in the retirement system and administering benefits for more than 1.5 million members and their families in the health program. CalPERS investments are managed by the Investment Office, which has the goal of generating total returns on a long-term basis while managing risk. The Investment Office makes investment decisions in stocks, bonds, real estate, private equity, inflation-linked assets, and other public and private investment vehicles. The Investment Committee is responsible for approving and overseeing compliance with investment policies, while the Board of Administration has investment authority and fiduciary responsibility for the management of CalPERS assets.

Sustainable Investments Program

CalPERS' Sustainable Investments (SI) Program is a "total fund" resource that addresses short- and long-term risks and opportunities that may impact returns. The program works across all asset classes to provide centralized leadership and strategy related to sustainable investment topics.

The Sustainable Investments Program conducts research on emerging sustainable investment risks and opportunities, prioritizing topics with the highest potential financial value to the fund. It guides and supports sustainable investment practices and environmental, social, and governance (ESG) factor integration into investment decision-making processes.

The program also leads advocacy efforts on various sustainable investment and financial market topics. It collaborates with other asset classes and program areas on engagement with portfolio companies, external managers, and stakeholders, while prioritizing resources toward topics with the highest potential financial value.

CalPERS' sustainable investing strategy is a risk-minimizing tool that helps manage potential risks to investments throughout its portfolio and across all asset classes. These risks can include climate change, poor workforce management, or an ineffective board of directors. By minimizing risks and avoiding potential threats to certain industries or geographic areas, CalPERS can help maximize returns and protect its fund.

Investment Manager Opportunities

The California Public Employees' Retirement System (CalPERS) offers a range of investment manager opportunities for those looking to manage their investments effectively. CalPERS is the largest defined-benefit public pension in the U.S., serving over 2 million members in the retirement system and administering benefits for more than 1.5 million members and their families in its health program.

The Investment Office at CalPERS is responsible for investing and managing its assets. The portfolio includes stocks, bonds, real estate, private equity, inflation-linked assets, and other public and private investment vehicles. The goal is to generate total returns on a long-term basis while managing risk. CalPERS has a fiduciary responsibility to its members to ensure sustainable returns and a well-balanced portfolio capable of meeting future pension costs.

The Investment Committee, authorized by the CalPERS Board of Administration, approves and oversees compliance with investment policies. The committee has adopted a set of beliefs that articulate the Pension Fund's views on public pension design, funding, and administration. The Investment Committee works closely with the Investment Office to carry out the daily activities of the Investment Program.

CalPERS offers a range of investment programs, including the Global Public Equity Program, Global Fixed Income Program, Private Debt Program, Private Equity Program, and Real Assets Program. Each program has specific strategies and focuses on different asset classes. For example, the Private Equity Program leverages its scale and expertise to achieve attractive risk-adjusted equity returns by investing in private market strategies globally. The Real Assets Program, consisting of Real Estate and Infrastructure portfolios, provides stable and predictable cash yields, diversification of equity risk, and inflation protection.

Additionally, CalPERS has a Sustainable Investments Program that provides centralized leadership and strategy for sustainable investment practices. This program conducts research on emerging sustainable investment risks and opportunities and collaborates with other asset classes and program areas to integrate environmental, social, and governance (ESG) factors into investment decision-making processes.

With a diverse range of investment programs and a focus on long-term returns and sustainability, CalPERS offers investment manager opportunities that contribute to the financial security of its members.

Global Public Equity

The Global Public Equity program aims to provide well-diversified exposure to global equity markets, manage risk through a combination of systematic and opportunistic strategies, and generate consistent returns over the long term. The program is designed to provide a balance between stability and growth, with a focus on managing risk and maximizing returns.

The management of Global Public Equity involves making strategic investment decisions, conducting in-depth market research, and regularly monitoring and evaluating the performance of investments. It also includes staying up-to-date with global economic trends and developments, assessing geopolitical risks, and considering sustainability and environmental, social, and governance (ESG) factors.

The CalPERS Investment Committee plays a crucial role in overseeing compliance with investment policies and guiding the investment strategy for Global Public Equity, in alignment with the organization's goals and risk management framework.

Private Equity

The program currently invests in four ways:

• Private equity limited partnerships ("limited partnerships")
• Direct and co-investments with existing CalPERS general partners
• Direct secondary investments
• Fund of funds (for specific mandates only)

Strategies in the portfolio include buyouts, credit-related, venture capital, growth/expansion, and opportunistic. As of March 31, 2024, the since-inception Net IRR was 11.0% and the Net Multiple was 1.5x.

CalPERS' private equity investments have shown strong performance, with a 20-year annualized return of 12.3%, outpacing all other asset classes as of the end of 2023. This strong performance has led to an increase in the allocation of private equity investments, from a target of 13% of the fund to 17%.

CalPERS' Private Equity Program seeks to build long-term partnerships with exceptional investors around the globe and invest in both fund partnerships and co-investments into operating companies. Consistency in capital deployment and strategy are critical to the long-term success of the program.

Real Assets Program

CalPERS's Real Assets Program consists of two distinct portfolios: Real Estate and Infrastructure. These investments are acquired and managed through separate accounts, joint ventures, and commingled funds between CalPERS and investment management firms. The program aims to provide a stable and predictable cash yield, diversification of equity risk, and inflation protection.

The Real Assets Program is an important component of CalPERS's overall investment strategy, which also includes investments in stocks, bonds, private equity, and other public and private investment vehicles. The goal of the investment office is to generate total returns on a long-term basis while managing risk.

The Real Estate portfolio within the Real Assets Program focuses on investing in physical properties such as commercial, residential, and industrial real estate. This portfolio provides a stable and consistent income stream for CalPERS through rents and property appreciation. The Infrastructure portfolio, on the other hand, invests in essential infrastructure assets such as transportation, energy, and utilities. These investments are typically long-term and provide a combination of current income and capital appreciation.

The Real Assets Program is managed by CalPERS's experienced investment team, which includes internal trading staff and external equity managers. They work together to make individual investment decisions on behalf of the CalPERS Board of Administration, with the goal of generating stable and predictable returns while managing risk. The team conducts thorough research and due diligence to identify attractive investment opportunities that align with CalPERS's investment criteria and strategic goals.

Overall, the Real Assets Program plays a crucial role in CalPERS's investment strategy by providing diversification, stable cash flow, and inflation protection. The program's focus on real estate and infrastructure investments helps to balance the portfolio and protect against equity market volatility.

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