CalPERS Looks Long-Term As New Allocation Shelters Portfolio From Market Highs

CalPERS’ allocation changes in the final months of 2016 have caused the pension fund to miss out on $900 million in potential investment return, according to remarks made by the CIO at a board meeting on Monday.

The pension fund moved away from stocks and private equity in September, opting for a less volatile asset allocation that is project to return around 6 percent annually.

However, CIO Ted Eliopoulos cautioned board members to keep the long-view.

From Reuters:

CalPERS Chief Investment Officer Ted Eliopoulos said during a board meeting on Monday that he wanted to “allay some of the anxiety and fears” by reminding the board that “our practice require us to take much longer periods of time into account.”

CalPERS decided in September to reduce some volatile stocks and private equity from its portfolio. Over the four months following until Dec. 31, the fund made more than $12 billion in net equity sales, according to fund documents. During that time, it experienced a lower return of approximately $900 million.

[…]

CalPERS expects a 5.8 percent annual investment return under its new portfolio asset allocation, significantly lower than the fund’s assumed rate of return of 7 percent by 2020.

The fund plans to make up for lower returns expected in the coming decade over the next 30 years or more.

One board member wondered if CalPERS could devise a method to retain its less volatile allocation while still capturing rallies. From the Sacramento Bee:

Board member Theresa Taylor questioned whether CalPERS could devise a different policy that might allow it act faster if trends change.

“I just want to make sure you are exploring all options so we are not leaving money on the table,” she said. “I know we are risk adverse and I get that but I also think that we leave ourselves open to not being able to do what we could be doing.”