U.S. Markets

CalPERS invests more in fixed-income to reduce portfolio risks

A sign at California Public Employees' Retirement System (CalPERS) headquarters in Sacramento, California, U.S. February 14, 2017. REUTERS/Max Whittaker

(Reuters) - Pension fund giant CalPERS said on Monday that it would increase its allocation of fixed income to 28 percent from 20 percent in order to reduce risks in its $346 billion portfolio.

Overall, the California Public Employees’ Retirement System Board opted to keep its asset allocation similar to its current investment portfolio. This decision will guide investment decisions over the next four years.

The fund’s expected rate of return will remain at 7 percent with an expected volatility of 11.4 percent, it said. The expected rate of investment return, or discount rate, was lowered in December 2016 to 7 percent over the next three years. That compares to the fund’s net rate of returns of 8.4 percent since 1988.

Most of CalPERS’ asset allocation will be similar to the portfolio’s current makeup: half the fund will remain invested in global equity, 13 percent in real assets, and 8 percent in private equity. Less money will be devoted to inflation-protection assets and kept in cash.

Henry Jones, chair of CalPERS Investment Committee, said in a statement on Monday that “this portfolio represents our best option for success while protecting our investments from unnecessary risk.”

Board member J.J. Jelincic, the one dissenting vote among the board, said he would have preferred a portfolio with a larger allocation of global equities, arguing that CalPERS had missed market gains after it sold off some equities a year ago.

“We need to be long-term investors,” said Jelincic at Monday’s meeting. “I just do not think that it makes sense to take the lower risk and accept a lower return.”

Reporting by Robin Respaut, Editing by Rosalba O’Brien