(LOS ANGELES) The largest US public pension will shift 11 per cent of its US$260 billion portfolio from stocks and bonds into private equity, real estate and investments pegged to inflation.

The board of the California Public Employees Retirement System, voted 9-3 on Monday to reduce fixed-income investments to 19 per cent from 26 per cent of assets and to lower stock holdings to 56 per cent from 60 per cent. The money will shift to alternative investments, real estate and a new inflation-linked asset class.

‘This should be gradual, from an implementation perspective,’ said the fund’s chief investment officer Russell Read.

The fund seeks to generate greater returns to meet rising pension and benefit costs. The board assesses how it parcels out its money every three years.

Lowering fixed-income investments means officials will shift about US$19 billion from bonds, based on the fund’s current value. A 4 per cent reduction in stocks amounts to approximately a US$10 billion shift.

Within its stock holdings, the fund agreed to lower its investments in US companies to 28.4 per cent from 40 per cent, shifting US$19.6 billion into foreign companies in order to make the portfolio more global and take advantage of the emergence of countries such as China.

The fund will boost to 10 per cent from 6 per cent its holdings in private equity, hedge funds and other alternative investments, a US$10.4 billion increase. Real estate holdings would increase to 10 per cent from 8 per cent, an addition of US$5.2 billion.

The new inflation-linked asset class will set aside 5 per cent of holdings, or about US$13 billion currently, into infrastructure and commodities, such as oil and timber. The changes will take two to three years to implement. Within each asset class, the fund’s investment managers are allowed to exceed or fall below target rates within a predetermined range.

The Sacramento-based fund calculates that it must earn at least 7.75 per cent annually to have enough money to meet demands of existing retirees. — Bloomberg

Source: Business Times