Long a trendsetter for public pension plans, the California Public Employees’ Retirement System (CalPERS) is mulling changes to its real assets platform, including a pilot leverage program for real estate.
In its latest five-year plan released last month, the country’s largest pension plan said it is looking to further unify its infrastructure, real estate and forestland programs as part of its broader real assets strategy. One of CalPERS’ consultants, Wilshire Associates, recommended that the pension system consider a pilot program to shift leverage levels from individual deals to program-wide application, in an effort to further align the system’s interests with those of its managers.
“There are certainly pros and cons to such an endeavor, but Wilshire believes that the portfolio is more likely to be able to sustain – and profit from – appropriate and judicious leverage at the program level,” wrote Wilshire’s president, Andrew Junkin, in a letter included in CalPERS’ April 18 meeting materials.
At the pension system’s April meeting, Paul Mouchakkaa, CalPERS’ managing director for real assets, noted that while CalPERS has consulted with experts and conducted internal research, this new program is not yet fully formed.
“What we believe can come out of it is better cost efficiency, greater transparency and greater alignment between (the) investment manager and ourselves,” Mouchakkaa said at the April 18 meeting, according to a transcript. “This is an area that is very new and in some cases is groundbreaking, although there are some limited partners or other plans pursuing a similar strategy.”
CalPERS, which held approximately $290 billion in assets under management as of April 11, first adopted a real assets approach in 2011 as part of its current five-year plan.