CalPERS Invests $1B in ESG Global Equity Portfolio

The California Public Employees Retirement System (CalPERS) has invested $1 billion in a new internally managed environmental, social, and governance (ESG) global equity portfolio and added another $260 million to a second internally managed $7.5 billion synthetic equity portfolio, showed documents presented at the system’s investment committee meeting on April 16.

While CalPERS Chief Investment Officer Theodore Eliopoulos has rejected overall portfolio tilts in the $350.9 billion retirement plan’s portfolio, the new ESG investment portfolio is an attempt to use such factors in a very small slice of the CalPERS portfolio.

The documents show that the new ESG portfolio was funded in February 2018 and its investment methodology was developed by investment advisory firm QS Investors of New York, New York. CalPERS entered into a five-year contract, without competitive bidding, for QSI to develop the strategy, details a CalPERS internal analysis in April 2017 of investment costs.

The value of the contract CalPERS is paying QSI could be more than $1 million per year over a five-year contract period, the CalPERS analysis shows.

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Eliopoulos told an investment committee meeting in June 2017 that the retirement plan had rejected overall portfolio tilts on ESG factors because of the inconclusiveness of studies in terms of ESG adding value to the CalPERS portfolio. But Anne Simpson, CalPERS investment director, sustainability, told CIO that CalPERS was exploring various portfolio tilts for its ESG program. She did not offer specifics and, on Monday, neither did CalPERS spokeswoman Megan White.

The $260 million added to CalPERS synthetic equity portfolio will expand what has been one of the pension plan’s most successful equity strategies. CalPERS data shows that the synthetic portfolio, which uses future contracts, derivatives, and other instruments, had a 24.42% return in the one-year period ending Dec. 31, beating its custom benchmark by 120 basis points.

On a five-year annualized basis ending Dec. 31, it produced an annualized rate of return of 16.81%, 129 basis points above its custom benchmark.

Almost 80% of CalPERS $200 billion global equity portfolio is internally managed. This includes index strategies, enhanced index strategies, and active strategies.

Tags: CalPERS, ESG, Global Equity, Pension, Theodore Eliopoulos

California State Treasurer John Chiang is taking another stab at influencing the California Public Employees’ Retirement System’s (CalPERS) program to diversify corporate boards.

Chiang had wanted the $350.9 billion pension plan to vote against corporate boards that were not at least 30% diverse regarding women, and ethnic and cultural representation.

CalPERS has been aggressive in pushing for corporate board diversity. Its global equity portfolio is more than $200 billion, giving the largest US defined benefit plan the license to engage corporations. Despite that, the pension system’s investment staff had rejected Chiang’s criteria as “arbitrary and limiting.”

On Monday, Deputy Treasurer Steve Juarez told the CalPERS Investment Committee that Chiang’s diversity quota plan, “may not be as logical and as fitting for the board to adopt as we might otherwise hope.”

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Juarez said the treasurer’s office will engage investment committee members “in a robust discussion about some other alternatives” at its next meeting on May 14. He said the discussion will be aimed at companies that are “not making significant progress” towards board diversity.

The deputy treasurer did not elaborate on how a revised plan by Chiang, who sits on the CalPERS board, would differ from his original quota proposal. Juarez was representing Chiang, who did not attend Monday’s meeting.

Anne Simpson, CalPERS investment director, sustainability, elaborated to investment committee members why CalPERS is against specific quotas or targets, “And I think what the principle is based on is this idea that we want boards to access all the talent that’s represented in society in their workforce and in their markets.”

The investment committee is expected to take a first vote on its governance and sustainability principles May 14 with a final adoption scheduled for its June 18 session.

But there was far from unanimous agreement at Monday’s meeting over one of the new principles, an anti-sexual harassment policy aimed at boards and executives of corporations. CalPERS investment staff has proposed their board directors and top corporate management be required to disclose all “material settlements” regarding sexual harassment.

“I think all of us have been watching with horror at the revelations that have been coming out,” Simpson said at Monday’s meeting. “And also, we can see the impact on the companies that we invest in. I mean, share prices collapsing and reputations are destroyed. So, this is a perfect example of where ethics and money really do combine.”

But investment committee member Richard Costigan questioned whether CalPERS principles were specific enough in terms of which sexual harassment settlements had to be disclosed. “We still have to define, what’s the word material?” he said. “Is it $1, $1 million, what’s the definition for this?”

He also said he was concerned that settlements would be reported, but the perpetrators, be they board members or executives, would remain on the payroll.

“I’m not concerned about the settlement as I am about getting rid of the bad person,” he said.

Simpson said she was open to refining the policy and Investment Committee Chairman Henry Jones asked her to do just that for the May 14 meeting.

Tags: CalPERS, Diversity, John Chiang, Pension, Steve Juarez