UPDATE 2-Calpers to boost private-equity, eyes distressed

* May boost private equity, venture target to 14 pct

* Fund sees buyout opportunities amid market slump

* Calpers last month discussed a distressed debt fund

* Calpers may vote on "opportunistic" investing in August (Adds detail on distressed investing)

By Joseph A. Giannone

NEW YORK, June 8 (Reuters) - The California Public Employees' Retirement System (Calpers) next week may boost its private-equity investment target by 40 percent, and take the first steps toward snapping up distressed debt as slumping markets create some real bargains.

The board of the country's largest public pension fund, managing $169 billion in assets, next week is scheduled to vote on a plan that would increase its target for corporate buyout and venture-capital investments to 14 percent of total assets from 10 percent.

Calpers' staff and its consultants, meanwhile, have discussed creating an "opportunistic strategy" fund that would snap up assets knocked down by the credit crisis.

If a subcommittee approves a policy for distressed investing next week, Calpers' full investment committee could vote on the new investment program on August 17.

Spokesman Clark McKinley said the fund's $22.8 billion of private equity and venture capital investments currently represents 13 percent of total assets -- at the upper end of the fund's range. The percentage figure jumped as the sinking stocks and other assets reduced the size of the overall fund.

"This is a great time to make some good deals," the Calpers spokesman said. "When markets are down, it's a good time to buy."

Private equity and VC investments could range from 9 percent to 19 percent of the total fund under the new plan.

At the high end of that range, Calpers at current levels could invest more than $27 billion in buyout and venture funds, a more than $4 billion boost.

Pension consultants Wilshire Associates had recommended a 15 percent allocation to private equity, but the fund's investment officers ultimately trimmed that target, according to a memo to Calpers investment committee.

Calpers declined to comment further on its new targets.

The massive fund is one of the most influential U.S. money managers, and its views on asset allocation, corporate governance and other matters often are copied by other states and heeded by corporations.

Now as corporate defaults soar and banks scramble to shed illiquid assets, Calpers is mulling a plan for setting aside as much as 3 percent of total funds for distressed debt. That includes toxic securities and loans held by banks, mortgage-backed securities as well as bonds issued under the U.S. Term Asset-backed Securities Lending Facility, or TALF.

The distressed asset portfolio was discussed during a Calpers investment committee workshop last month, according to a memo. The next step: a Calpers subcommittee on June 15 would adopt a policy paving the way for the new activity.

Funding for the distressed strategy may come at the expense of Calpers' stocks, debt or inflation-linked portfolios, according to a presentation to Calpers.

There are several other changes under the proposed investment targets up for a vote next week.

Calpers would shrink its investment target for stocks and hedge funds to 49 percent from 56 percent and boost fixed income by one percentage point to 19 percent.

Calpers for the first time also plans to keep 2 percent of its money in cash, up from its traditional zero cash policy.

The fund's current targets of 10 percent in real estate and 5 percent in inflation-protected Treasuries would not change.

Calpers sets its investment targets for stocks, debt and other assets every three years, and the current allocation plan expires in December 2010, the spokesman said. Calpers said it will do "a more thorough" asset allocation assessment next fall before setting targets for the next three years.

Actual investments can fall within a certain range around targets, but ranges have been narrowed as volatility subsides.

(Reporting by Joseph A. Giannone; Editing by Richard Chang, Gary Hill)