Last month, the California Public Employees' Retirement System (CalPERS) increased its investment manager discretion limits in real assets, in a move that industry experts say falls in line with a broader trend toward more discretionary spending.
CalPERS raised the threshold for its managing investment director in real assets, Paul Mouchakkaa, and chief investment officer, Ted Eliopoulos, to invest in real estate without committee approval, to $3 billion and $6 billion, respectively, per commitment. Previously, the managing investment director could make up to $1.5 billion in investments and the chief investment officer could make up to $2.5 billion, according to a CalPERS’ spokesman. CalPERS also capped annual discretionary real estate investments at $10 billion each, up from $7 billion.
The moves are described in meeting documents as part of a broader effort to reduce complexity and improve transparency in the pension’s investment strategy. The change is intended to increase consistency across CalPERS’ real assets program, which also includes infrastructure and forestland investments.
Managers are still required to mitigate risk by maintaining “an appropriate level of diversification,” and the fund has outlined geographical and leverage limits for each sector, constraints that “are intended to create a lower risk portfolio,” according to pension documents.
Alan Kosan, the head of consultancy Segal Rosercasey’s alternative investments research group, said CalPERS’ decision mirrors a larger trend toward more pension discretion.
It allows pensions to “move with alacrity in the market without waiting for a decision by a committee,” he said. “It can be a very positive execution tool in the illiquid asset classes.”
Discretionary investments are appealing both in-house and externally, Kosan noted.
“The fact that you control your own funding makes you a desirable partner for other co-investors out there,” he said. “You don’t have to go through the different gates required otherwise to get deals done in a cumbersome governance structure.”
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