Calpers Is Betting That Private Markets Can Help It Navigate Market Volatility

Jun 14, 2022 | News

California’s largest pension system has lost nearly $50bn of its total portfolio value since the beginning of the year, but its newly appointed chief investment officer is betting that a recently adopted strategic allocation that includes more private equity and real assets will help it weather the market storm.

California Public Employees’ Retirement System had nearly $500bn in assets when it hired Nicole Musicco in February. Now the portfolio is down with almost $50bn.

California Public Employees’ Retirement System’s new chief investment officer says the exposure to private markets in its new strategic allocation will benefit the system in uncertain times.

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Back in March, the California Public Employees’ Retirement System, upped it allocation to alternatives by over $7bn at then back end of 2021.

The new funds were allocated to eight opportunistic credit strategies during Q4 2021 with the $490bn pension scheme having added private debt to its allocation strategy earlier in the year following a strategic review of investments.

 The recent developments in the economy is not the only obstacle for the pension manager. A debate is raging inside the California Public Employees’ Retirement System over whether it should quickly exit its Russia investments — at a hefty cost.

In the past week, staffers at the largest U.S. public pension discussed the possibility of dumping the holdings, a decision that would ultimately require the board’s approval. That followed California Governor Gavin Newsom’s call for state pensions to cut off money to Russia following its invasion of Ukraine — and to send a message to the world that the country is uninvestable.

Then came the price tag: Calpers would have to mark down its entire portfolio of publicly traded Russian investments — recently valued at roughly $300 million — to zero. Some senior managers reckoned the investments would be worthless if they tagged them for hasty disposal amid stiff sanctions and swooning prices for Russian assets, according to a person familiar with the matter.

The conversations inside the $500 billion fund underscore the challenges faced by pension plans, endowments and corporate leaders across the U.S. as they grapple with how to respond to the growing humanitarian crisis. The Pennsylvania Public School Employees’ Retirement System plans to sell holdings in Russia and Belarus, and New York City’s comptroller has called on the city’s five pension funds to divest from Russia.

One big question at Calpers: If the pension fund unloads the stocks, should it do that in days, weeks or months? The answer would affect the size of the markdown, as well as the prices such assets ultimately fetch.

Source: Wall Street Journal

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