For example, private equity was the pension plan’s most profitable asset class during the year-to-date and one-year periods ended March 31, returning 21% and 32, 7%, respectively. (CalPERS private equity returns are lagged by one quarter.)
Additionally, there was a higher correlation between equities and bonds, “so the diversification didn’t play out as generally expected,” Ms. Musicco said.
“Where do we go from here?” she says. “We’ve navigated volatile markets like this before” and CalPERS’ current asset allocation, which passed in November, “remains the right choice.”
CalPERS officials “will continue to evolve our strategy,” as appropriate, to mitigate risk and take advantage of market dislocation, Ms. Musicco said.
CalPERS is also changing its strategic plan for investments to align with a five-year, company-wide plan the board adopted in April, she said. This five-year plan includes incorporating sustainable investment strategies as well as mitigating the risk of material investment loss while balancing contribution levels and volatility.
The Investment Committee also amended its Total Investment Policy Statement for the fund to reflect its new asset allocation, including a new private debt allocation of 5% and the addition of a total leverage limit. effective by 20% by reducing its active leverage from 20% to 15% and adding 5% strategic leverage to its asset allocation. The new private debt allocation includes under-allocation ranges of 20% to 100% for direct lending, 5% to 40% for specialty lending, zero to 25% for liquidity financing, 5% 40% for real estate financing and zero to 25% for private structured products.
Separately, CalPERS made changes to the target-date fund glide path in its $2.3 billion and $126 million after-tax and deferred-tax compensation plans. Use of the term fund suite is growing, accounting for 54% of balances and 75% of contributions, according to a staff report to the investment committee. Sixty-eight percent of plan participants are 100% invested in target date funds, which are the eligible default investment alternative — the fund automatically selected when a participant joins the program.
The new Glidepath allocation increases equity for the 2065 starting portfolio, increasing global equities by 2 percentage points to 94% and cash to 2% from scratch. It also cuts real assets to 1% and US fixed income to 3% by 2 percentage points each.