Elephant Shifts Its Weight

Like everything else in California,its pension fund,the California Public Employees' Retirement System,or CalPERS,is gigantic.CalPERS manages about 261 billion dollars U.S. for around 1.5 million employees and retirees.This massive fund is in the midst of a 2-3 year transition to a new asset allocation.Russell Read,chief investment officer of CalPERS,is directing a cutback in stocks and bonds in favor of investments such as private equity,real estate,commodities,infrastructure projects and timber.As well, the equities portion of the portfolio will be moved to a greater proportion of foreign stocks.All of this is needed to ensure a larger return for the workers CalPERS serves.The stocks allotment will go down to 56% from 60%.Indeed,stocks have already been trimmed to about 58%.The current allocation of 36% U.S. stocks will decrease to 28%,while foreign stocks will go from 21.6% of the portfolio to 28%.Bonds will be reduced from 26% to 19%.Mr.Read is fundamentally optimistic about the global economy,although there will be continued softness in financials and a trading range of 13-14,000 in the Standard and Poor's 500 index.Energy and materials are favored.He also likes real estate,including global real estate,for the long term.Private equity investments such as Silver Lake Partners,which buys technology firms,don't necessarily follow the stock market.About 5% of CalPERS' portfolio will go into inflation-linked investments,which tend to do well when inflation ticks up.These include timber,infrastructure and commodities.The real estate portion will rise from 8% to 10%.Alternative investments,including private equity and venture capital,which invests in start-up companies,will go from 6% to 10% of CalPERS' holdings.In its last fiscal year,CalPERS earned a total return of 19.1%.Fiscal 2008,which began last July,will be very challenging,given current market conditions.The new strategy will give CalPERS a better chance of sustaining its great success.