CalPERS to Commit $500 Million to Environmentally-Friendly Companies

The country’s largest public pension fund has said it will pour $500 million into 'green' companies, focusing on “top performers that have improved share value and also done good for the environment.”

(November 11, 2010) — The California Public Employees Retirement System (CalPERS), aims to invest $500 million in a ‘green’ portfolio in an effort to limit greenhouse-gas emissions and improve the environment. The investment is in addition to about $2 billion CalPERS has committed to green-related investments in the past four years.

“This new index has kept pace with non-environmental investments in recent years, and has outperformed our external environmental managers who have focused solely on excluding polluting companies from their portfolios,” George Diehr, CalPERS investment committee chairman, said in a statement. CalPERS Board President Rob Feckner added that until now, the fund has invested in external managers whose funds screen out the “worst offending” public companies. But, he said the fund’s new green initiative — which relies on internal management — is a more robust and quantitative strategy.

The internal team responsible for managing the strategy will model it after HSBC’s Global Climate Change Benchmark Index (HSBC CCI), according to CalPERS. To be included in the portfolio, companies must derive a material portion of their revenues from low-carbon energy production, such as wind, solar, biofuels and other alternative energy; water, waste and pollution control; energy efficiency and management including building insulation, fuel cells and energy storage; and carbon trading and other capital deployment and financial products.

“Research shows that a positive inclusionary methodology for investing in common stock companies is more successful than a negative exclusionary approach that uses subjective rather than quantitative selection criteria,” Diehr said.

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Since 2006, the $219 billion public fund has committed $500 million to external managers in its Global Equity asset class who restrict companies with a negative environmental footprint.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Survey Shows Pensions Take More Tactical Approach to LDI Hedging

The fund manager's latest quarterly survey has revealed a continued level of inflation hedging and a slight decrease in interest rate hedging.

(November 11, 2010) — As risk management has begun to outpace investment returns as the premier focus for pension fund execs following the recent market downturn, a greater number of pensions are taking a tactical approach to liability-driven investment hedging, according to a recent survey by F&C.

“Often this means that they are switching between swaps, gilts and index-linked gilts to take advantage of value opportunities,” said F&C head of derivative fund management Alex Soulsby. He added that the cheapness of inflation has been implied by the index-linked gilt market this summer, reflecting opportunity for pensions.

According to the fund manager’s latest quarterly survey, inflation hedging has become increasingly prominent among pensions while interest rate hedging has declined in popularity compared to previous quarters. The firm stated in its results that exposure was attained through both physical and synthetic hedging instruments.

In related news, EDHEC Business School in London has recommended that money managers should hedge market risks from their businesses in order to protect their shareholders or other owners from investment volatility. According to the paper titled “Market Risks in Asset Management Companies,” such hedging would improve the relationship between compensation and adding value to shareholders.

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To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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