WSJ: CALPERS Votes to Use Leverage, More Alternative Assets
By Chriss Street, AENN
WSJ: Retirement Fund Giant CALPERS Votes to Use Leverage, More Alternative
Assets
Despite huge stock market gains over the last decade, U.S. pensions are
hundreds of billions of dollars short of what they expect to need to pay
public worker retirement benefits. The board of the nation’s largest
pension fund voted Monday to use borrowed money and alternative assets to
meet its investment-return target, even after lowering that target just a
few months ago.
The move by the $495 billion California Public Employees’ Retirement System
reflects the dimming prospects for safe publicly traded investments by
households and institutions alike and sets a tone for increased risk-taking
by pension funds around the country.
Without changes, Calpers said its current asset mix would produce 20-year
returns of 6.2%, short of both the 7% target the fund started 2021 with and
the 6.8% target implemented over the summer.
Board members voted 7 to 4 in favor of borrowing and investing an amount
equivalent to 5% of the fund’s value, or about $25 billion, as part of an
effort to hit the 6.8% target, which they voted not to change. The trustees
also voted to increase riskier alternative investments, raising
private-equity holdings to 13% from 8% and adding a 5% allocation to private
debt.
Borrowing money to increase returns allowed Calpers to justify the 6.8%
target while maintaining a more-balanced asset mix, concentrating less money
in public equity and putting more in certain fixed-income investments, fund
staff and consultants said.
Chriss W. Street
chriss.street@gmail.com
