CalPERS mulls updates to real assets strategy

The California Public Employees’ Retirement System (CalPERS) is looking to further unify its infrastructure, real estate and forestland programmes as part of its broader real assets strategy, in its latest proposed five-year plan.

The StepStone Group, in a review of the real assets strategy’s effect on CalPERS’ infrastructure programme, noted its belief that “the increased integration of component asset classes should help reduce complexity across the real assets unit and investment office”.

CalPERS, which currently holds approximately $290 billion in assets under management as of 11 April, first adopted a real assets approach in 2011 as part of its current five-year plan, which includes infrastructure, real estate and timberland.

The number of infrastructure and timberland manager relationships would be set to a combined total of 10, whereas currently CalPERS maintains eight such relationships for infrastructure alone.

The updated plan creates a new integrated structure comprising five divisions, which are strategic planning, new investments, PARRGO (portfolio, analytics, research, risk, governance and operations), a portfolio management group and investment research. Risk classification would be unified, with investments falling into the three buckets of core, value-add and opportunistic, which StepStone said “should help to clarify the role real assets investments are expected to play in CalPERS’ portfolio, especially for the purposes of asset liability management”.

“The emphasis on maintaining fewer, larger relationships with external managers is positive and should contribute greatly to a reduction in the complexity and costs associated with CalPERS’ investments,” StepStone noted. Still, the firm said that “a cap on the number of manager relationships may limit CalPERS’ ability to gain access to top-tier specialists and to maintain a diversified portfolio of infrastructure investments.

“The new strategy calls for 50 to 100 percent of investments to take place in the US, up to 50 percent in international developed markets, a maximum of 15 percent into international emerging markets, and up to 5 percent into international frontier markets.

Last year, CalPERS disposed of $3 billion-worth of real estate fund stakes on the secondaries market, where it was bought by Strategic Partners.