CalPERS' Total Fund Investment Policy (Policy)
The CalPERS' Total Fund Investment Policy (Policy) is designed to enablew CalPERS to achieve a long-term total return. Accordingly, prudent risk-taking is appropriate within the context of overall diversification to meet CalPERS’ long-term investment objectives. As adopted by the CalPERS Board of Administration's Investment Committee (Committee), the Policy sets out CalPERS' Investment Beliefs and overarching investment purposes and objectives with respect to all investment programs. The purpose of the Policy is to provide a framework for the management of CalPERS' assets. The Policy outlines objectives, benchmarks, restrictions and responsibilities so the Committee, staff, consultants, managers, members, and beneficiaries, and all other CalPERS stakeholders, clearly understand the objectives and policies of the CalPERS investment program.
The Policy is reviewed and approved annually by the Committee to ensure policy relevancy remains due to the changing nature of CalPERS assets and investment programs, benefit and structural changes, and economic conditions. The Policy was last reviewed and approved in November 2018. Policies can be found here: https://www.calpers.ca.gov/page/investments/about-investment-office/policies
Each asset class has their own Investment Policy:
Global Equity: https://www.calpers.ca.gov/docs/policy-global-equity.pdf
Fixed Income: https://www.calpers.ca.gov/docs/policy-global-fixed-income.pdf
Private Equity: https://www.calpers.ca.gov/docs/policy-private-equity-program.pdf ; https://www.calpers.ca.gov/docs/policy-restrict-private-equity-outsourcers.pdf
Real Assets (Real Estate, Infrastructure, & Forestland): https://www.calpers.ca.gov/docs/policy-real-assets-program.pdf ; https://www.calpers.ca.gov/docs/policy-responsible-contractor-2015.pdf
Other Programs: https://www.calpers.ca.gov/docs/policy-absolute-return-strategies.pdf ; https://www.calpers.ca.gov/docs/policy-inflation-assets.pdf
CalPERS' Investment Beliefs
The Beliefs reflect CalPERS’ values and acknowledge CalPERS’ responsibility to sustain its ability to pay benefits for generations. Specifically, Investment Beliefs are:
- Liabilities must influence the asset structure
- A long time investment horizon is a responsibility and an advantage
- CalPERS investment decision may reflect wider stakeholder views, provided they are consistent with its fiduciary duty to members and beneficiaries
- Long-term value creation requires effective management of three forms of capital: financial, physical, and human
- CalPERS must articulate its investment goals and performance measures and ensure clear accountability for their execution
- Strategic asset allocation is the dominant determinant of portfolio risk and return
- CalPERS will take risk only where we have strong belief we will be rewarded for it
- Cost matter and need to be effectively managed
- Risk to CalPERS multi-faceted and not fully captured through measurers such as volatility or tracking error
- Strong processes and teamwork and deep resources are needed to achieve CalPERS goals and objectives.
CalPERS' Governance and Sustainability Principles:
Included in the Total Fund Policy, CalPERS Principles serve as the framework by which CalPERS executes its shareowner proxy voting responsibilities; engages public companies to achieve long-term, sustainable risk-adjusted returns and works with internal and external investment managers to ensure their practices align with CalPERS' Investment Beliefs. The Investment Committee reviews the Principles on an annual basis to ensure relevancy. Most recent revisions to the Principles included:
- New principle on Corporate Culture
- Expanded Environmental Practices
The updated Principles and CalPERS Total Fund Policy were reviewed and approved by the Investment Committee in June 2018.
CalPERS' Governance and Sustainability Strategy
Included in the Policy is the CalPERS’ Governance and Sustainability Strategy, implemented through the three channels of Integration, Engagement and Advocacy, supported where applicable by the use of strategic partnerships to advance CalPERS’ investment and policy objectives. Additionally, Investment Office Staff are required annually to report on investment program strategy and its alignment with the CalPERS Governance and Sustainability Strategy and associated in-force strategic plan.
CalPERS' Total Fund Governance and Sustainability Strategic Plan
In August 2016, the Committee approved CalPERS' Total Fund Governance and Sustainability Strategic Plan (Plan). The 5-Year Plan identified six strategic priorities and core workload initiatives focused on ESG issues which cross the Total Fund and effect CalPERS ability to manage risk and return. Each strategic initiative has a clearly defined objective, key performance indicators to serve as measures of success, milestones and a timeline.
As outlined in the Policy, the Sustainable Investments Program is responsible for the oversight and management of the Plan and progress is reported annually to the Committee. https://www.calpers.ca.gov/docs/board-agendas/201903/invest/item09a-01_a.pdf
Plan initiatives outline CalPERS’ future work in sustainable investment and include:
Data and Corporate Reporting Standards
Climate Action 100+ (formerly termed UN PRI Montreal Pledge company engagement)
Diversity and Inclusion
Sustainable Investment Research
Private Equity Fees and Profit Sharing Transparency
New Managing Investment Director
CalPERS created a new position, Managing Investment Director of Sustainabe Investments, which reports to the Chief Investment Officer. This is the first time CalPERS has had a position at this level in the Investment Office which is focused on Sustainable Investments. https://www.calpers.ca.gov/page/newsroom/calpers-news/2018/beth-richtman-named-managing-investment-director-sustainable-investments
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