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CalPERS presents first reading of revamped investment policies and affiliate ALMs; staff recommends private‑equity incubation for Judges 2
Summary
Staff outlined a modular reorganization of CalPERS investment policy (umbrella Statement of Investment Policy, standalone PERF policy and affiliate policies), replacement of asset‑class limits with a 400‑basis‑point active‑risk limit for PERF, and ALM recommendations that include adding private equity on a 5% incubated cap to the Judges 2 trust.
CalPERS staff presented a first reading on March 12 of a comprehensive restructuring of the fund's investment governance documents and affiliate asset‑liability management (ALM) recommendations.
Amy Deming, presenting the policy rewrite, described an umbrella Statement of Investment Policy that consolidates static preamble content and a new PERF policy aligned to the Board's reference portfolio and the total portfolio approach. The draft PERF policy replaces multiple sub‑asset class limits with an active‑risk limit set at 400 basis points and maintains a total fund leverage cap of 20% (15% active, 5% strategic under the draft language). Staff said the PERF policy would return for a second reading in June.
On the ALM front, staff presented capital market assumptions and recommended portfolios for multiple affiliate trusts. Most affiliate portfolios were recommended to remain unchanged. Staff proposed a lower‑risk portfolio for the Legislators' Fund (to better align expected return with its 4.5% discount rate) and recommended maintaining conservative allocations for cash‑flow negative funds such as the Long Term Care fund.
Notably, staff recommended adding private equity to the Judges 2 trust on an incubated basis, capped at 5%. Rafael Garcia said the phased incubation would start with program setup, then gradual investments under a strict cap, building a track record and returning to the board for a permanent allocation decision in a future ALM cycle. Staff said they would present modeling that shows where a 5% private‑equity cap would be funded (likely from growth assets) and the expected impact on the portfolio at the second reading.
Wilshire and other consultants supported the process and flagged opportunities where portfolios could be de‑risked while preserving target returns. Trustees asked for sensitivity and scenario analyses, and staff agreed to provide more model runs and translation of active‑risk metrics into asset‑allocation reporting for the board prior to the second readings.
