The California Public Employees’ Retirement System, the largest public pension fund in the world, yesterday approved new allocation ranges to potentially double its investments in corporate governance activism and hedge funds, each from $5 billion to more than $10 billion.
“This is in response to the solid performance of these funds in recent years and the need to capitalize on excellent market opportunities,” said Rob Feckner, CalPERS’ board president. “Corporate governance and hedge funds also help us to reduce risk since they are less affected by market swings than many other investment strategies.”
CalPERS currently manage $5.1 billion in the corporate governance program, which seeds start-up funds that invest in underperforming public companies and strengthen their corporate governance practices to improve overall performance. Until yesterday, the allocation range was 1% to 5% of the total global public equity portfolio of more than $150 billion.
The newly approved allocation is for 2% to 8%. Current investments are in the United States, Europe, the United Kingdom, and Japan, while future investments can include both developed and emerging markets. Since its inception in 1996, the program has generated annual returns averaging about 15%, compared with benchmark gains of nearly 7%.
CalPERS’ Risk Managed Absolute Return Strategies program currently manages some $5 billion in 21 single-strategy funds and seven funds of funds in Asia, Europe, and emerging markets. Since 2002, the program has returned 9.5%, according to the system.
Both programs will be funded from CalPERS' passive stock index funds.