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CalPERS approves new real assets strategic plan

by Loretta Clodfelter

The investment committee of the $285 billion California Public Employees’ Retirement System approved the pension plan’s 2016 Real Assets Strategic Plan on April 18.

The five-year plan builds upon the strategic plan established in 2011 to reset the real assets investment program following the global financial crisis, reducing the number of managers, reducing the use of leverage and focusing on core investing.

The new plan includes a continuation of those goals, and an emphasis on improving the structure of the real assets portfolio to harmonize across the three separate programs of forestland, infrastructure and real estate.

According to Paul Mouchakkaa, managing investment director at CalPERS, one of the improvements in the new plan “is to move from three distinct programs — forestland, infrastructure and real estate — to one real assets asset class, which has one overarching role and one overarching strategy.”

As part of that realignment, “we chose to use core, value-add and opportunistic as the nomenclature for our risk parameters and then harmonize our segments and sectors across the real assets investment universe,” adds Mouchakkaa.

Previously, CalPERS used core, value-add and opportunistic as the risk parameters in real estate, and the system used defensive, defensive plus and extended for infrastructure, and it had not established risk profiles for its forestland portfolio.

In addition to harmonizing the risk classifications across asset classes, the 2016 Real Assets Strategic Plan will include a cap on development, consistent leverage measurements and a consistent approach to international investments. The real assets portfolio will have a geographical parameter of 70 percent to 100 percent in the United States and 0 percent to 30 percent international, further subdivided into international developed (0–30 percent), international emerging markets (0–15 percent) and international frontier markets (0–5 percent).

The new plan also introduces six segments to organize across the real assets portfolio: essential (water, energy, waste, timber, agriculture); commercial (office, industrial, transportation); consumer (retail, hotels, technology, communications); residential (multifamily, single family); specialized (emerging managers, urban, opportunistic); and international (international real estate, international infrastructure, international forestland).

Mouchakkaa explains the new plan establishes that CalPERS has “one role for real assets, that role being harmonized to focus on stable and predictable cash yield, diversifying equity risk, and to provide inflation protection. Having one role across real assets we believe benefits the fund by improving transparency, reducing complexity and allowing for more efficient and informed investment decisions within real assets versus managing three separate programs independently.”

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