CalPERS ASSET ALLOCATION STRATEGY
CalPERS’ diversification strategy is for an ongoing goal to maintain targets and ranges within their asset allocation mix. To ensure prevention of large losses and to preserve capital, CalPERS has close to 200 billion diversified across domestic and international markets. The CalPERS investment portfolio is diversified into several asset classes, so that over the long run any weaknesses in one area are offset by gains in another. The Asset Classes that CalPERS uses to diversify their small fortune are as followed: Global Equity, AIM (private equity), Global Fixed Income (GFI), Real Estate, Inflation-linked Assets, and Cash. Each asset class has been set with a target and a +/- range, usually between 5 and 7 %. In order to keep these targets on point, a comprehensive Asset Allocation Strategy analysis is completed once every three years. These analyses will make sure to include the long-term capital markets outlook, expected inflation, and CalPERS’ risk tolerance, as well as each individual class’ expected return, volatility, and correlation. More importantly is the criteria considered when choosing each asset class. To invest significant amounts, CalPERS must consider size, liquidity, and cost efficiency. They must consider availability of investments, as well as the expertise to implement those investments, including the sufficient data and history. An asset class is approved only if all necessary criteria are met, and the Committee has the opportunity for successful education to make such an approval. For the sole purpose of adjusting asset class allocations, derivatives and leverage may be used. Derivatives may minimize transaction costs, increase the speed of transaction costs and responding quicker to volatile capital markets and minimize any disruption to CalPERS portfolios. -------------------------------------------------
In addition to their goals...