CalPERS Introduces New Trust Portfolio to Ease Employers’ Woes

The nation’s largest pension fund finally implemented a long-coming plan, setting up a trust fund that allows public employers to prefund their pension liabilities. The fund provides a vehicle for investments designed to accumulate assets over time to mitigate employers’ difficulty with managing long-term costs and fees.

Called the California Employers’ Pension Prefunding Trust (CEPPT), the new fund “gives public agencies an opportunity to save and plan ahead,” said California Employees Retirement System, (CalPERS) Chief Executive Officer Marcie Frost. “Prefunding is a smart and efficient approach for employers to mitigate risk increases and temper contribution volatility. Benefits are only as secure as our employers’ ability to pay them.”

The asset allocation of the trust’s portfolio is designed with a focus on the relatively short timeframes that participants will remain in the trust, putting an emphasis on a portfolio strategy for short- and medium-term investments.

The board reviewed potential asset allocations for the two diversified strategies in June. Five separate portfolios were considered, and the two selected allocations and an explanation of the reasoning behind these selections is detailed in the chart below:

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Source: CalPERS

“A conservative portfolio is recommended for the trust portfolio 2, to accommodate a shorter investment horizon and lower risk tolerance,” Alison Li, investment manager, Trust Level Portfolio Management at CalPERS, said at the June meeting. “Staff propose portfolio 4 over portfolio 3, because portfolio 3 doesn’t offer enough difference from portfolio 2, and is also preferred to P5 because P5 has high volatility, which is not advised for investors with low to medium investment horizons and low to medium risk tolerance.”

The selected allocations also provide low investment management fees, with an annual fee of 0.25%, as well as improved financial security for active employees and retirees.

“We are excited to partner with local agencies and give them a tool they requested,” said Michael Cohen, CalPERS’s chief financial officer. “The trust will help local agencies reduce future obligations, reduce risk on their balance sheets, and address their future costs.”

The retirement system recently announced investments in its home state grew 11.6% in the 2017-2018 fiscal year.

CalPERS In-State Investment Program is Up More than 11%

Tags: Asset Allocation, California Employers’ Pension Prefunding Trust, CalPERS, Marcie Frost, Pension

The Ontario Teachers’ Pension Plan is preparing to exploit potential opportunities over the next few years by putting people on the ground where the business is going to take place.

This includes China, India, Indonesia, Australia, Vietnam, and the Philippines—regions Chief Executive Officer and President Ron Mock says are likely to be ripe for further investment in the next few years.

“We plan on growing our European and Asian operations extensively,” Mock said in a statement issued to Reuters. “Asia represents a growth opportunity over the next 10-15 years… you can’t just set up on a dime and take down on a dime when you’re investing in private assets like private equity and infrastructure.”

He noted that the new strategy could see a tripling of headcount in Ontario Teachers’ employers based in Asia and could potentially see the opening of new offices in Mumbai and Singapore.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Regarding its European expansion, Mock said that “London remains, and will remain, our home base for the UK and for Europe.”

He added that he and his team may delegate an additional $8.3 billion into infrastructure and other real assets in the near future. Canadian pensions typically invest heavily in infrastructure, relative to their US peers. Oftentimes they take direct investments in infrastructure assets.

Real assets generated a one-year return of 7.0% for Ontario Teachers’, short of the 8.1% benchmark. It currently has about C$18 billion invested in infrastructure, net, representing approximately 9%-10% of its overall portfolio allocation.

The fully funded pension recently announced a C$1 billion commitment to the National Investment and Infrastructure Fund of India, an investment vehicle that purchases equity capital in core infrastructure sectors in India, with a particular focus on transportation, energy, and urban infrastructure.

Ontario Teachers’ managed approximately $144 billion in assets at the end of 2018 for 327,000 teachers.

Ontario Teachers’ Pension Plan CEO to Retire

Ontario Teachers’ Blasting Off with SpaceX

Tags: Australia, China, Emerging Markets, India, Indonesia, Ontario Teachers' Pension Plan, Pension, Philippines, Ron Mock, Vietnam