CalPERS, the nation’s largest public-pension system, has given preliminary approval to a set of beliefs designed to guide its investment policies and ensure the fund’s growth.
CalPERS believes it is the first U.S. pension fund to adopt specific investment beliefs to help it set its course over the long run.
“These beliefs are another important step in the recovery of CalPERS, providing a clear direction and philosophy for investment decisions,” Joe Dear, CalPERS CIO, said in a news release.
CalPERS, which has more than $265 billion in assets, provides retirement benefits to California’s public employees.
Its beliefs, CalPERS said, include: liabilities must influence the asset structure; a long-time investment horizon is a responsibility and an advantage; and long-term value creation requires effective management of three forms of capital – financial, physical and human.
Another of its beliefs: “Risk to CalPERS is multi-faceted and not fully captured through measures such as volatility or tracking error.
That’s why, it said, it must “consider risk factors, for example climate change and natural resource availability, that emerge slowly over long time periods, but could have a material impact on company or portfolio returns.”
CalPERS said its beliefs are intended as a framework for making decisions and not a checklist for each investment. A final version of the policy is expected to be adopted at the system’s October Investment Committee meeting.
The CalPERS board of administration, acting with the help of staff member and investment consultants, began formulating the list last fall. The process included workshops to solicit comment and ideas from the public.
Like other public pensions plans, CalPERS has been struggling in the aftermath of the recession and growing unfunded future liabilities. California Gov. Jerry Brown last year pushed changes to pension benefits through the legislature. Unions have been fighting some of the changes. The system’s pension payments have doubled since 1999.
“Having an overarching set of investment beliefs to guide decision-making throughout the organization will be a tremendous asset as we work toward our strategic goals,” Henry Jones, CalPERS Investment Committee chairman, said in the release.