US - The California Public Employees Retirement System (CalPERS) has adopted a new asset allocation mix which will see $29bn shift out of bonds and listed stocks to finance increased investment in private equity, infrastructure and real estate.

The $250bn (€173.7bn) pension fund - which is the largest in the US - has decided to place more focus on venture capital, commodities, infrastructure and real estate as part of its tri-annual allocation study.

CalPERS said it will continue to target 66% of its portfolio on equities, but within this it has reduced its allocation to global publicly-traded stocks from 60% to 56% and increased private equity investment by 4% to 10%.

It also confirmed a 7% cut in its fixed income allocation to 19%, while investment in inflation-linked assets will have a 5% allocation, and real estate investment will increase 2% to 10%.

Although there is no timetable for deploying the funds, as it partly depends on market trends and opportunities, CalPERS said it expected the new targets to be reached within the next two to three years.

Rob Feckner, president of the CalPERS Board, said: "We have achieved strong results for the last four years, but that is not a guarantee that we would be as successful with the existing allocation.

"This new asset allocation - with its emphasis on international stocks, venture capital, commodities, real estate and infrastructure - is the right mix to help us provide for our retirees."

Its decision to increase the allocation to real estate will provide around $4bn of extra investment into the sector over the next three years.

CalPERS said the move was based on several factors, such as high performance levels in the asset class, and followed input from the real estate consultant, Pension Consulting Alliance.
 
It reported a 4.3% growth in the real estate portfolio during the third quarter of 2007, and yearly growth of 14.8%, although the fund admitted it had already invested 7.8% of its previous 8% allocation on a cash basis.
 
The pension fund is in the process of working out a new strategic plan, but it confirmed it will be looking to invest most of the new capital in a variety of value-added and international strategies. 
 
The scheme revealed in August its long-term goal is to increase the international real estate part of the real estate portfolio to around 50%, which will include investments in Europe, Asia and Latin America, while CalPERS also intends to add a variety of value-added investments to the portfolio. (See IPE Real Estate story: CalPERS considers major real estate emigration)

Topics