CalPERS Raises Target for Share of Fund in Stocks

The board of the state’s main pension fund has endorsed what the booming stock market has already accomplished: a greater tilt toward stocks in the $127-billion fund and away from certain other assets.

The California Public Employees’ Retirement System said Wednesday that it raised the target percentage for U.S. stock investments to 41% of the fund from 38%. The foreign-stock target was unchanged at 20%.

At the same time, the target percentages for investments in real estate, “alternative” assets and cash were reduced by 1 percentage point each, to 6%, 4% and 1% of the fund, respectively. The target for bonds remained at 28%.

The CalPERS fund’s U.S. stock investments already totaled 44.8% of assets as of July 31, and foreign stocks were 19.6%, with bonds 26%. The rest was spread among real estate, alternative assets and cash.

CalPERS’ board voted in 1994 to raise the fund’s stake in stocks while cutting bonds--a fortuitous decision, as it turned out, given the U.S. market’s surge since 1994.

Although some critics say CalPERS is taking too much risk with its tilt toward stocks, the fund directors’ view is that “the long-term risk and return characteristics of [U.S.] equities remain very favorable,” said Charles Valdes, head of CalPERS’ investment committee.

While the fund already exceeds its stock target, CalPERS officials say that is a function of the fund’s growth and their inability to invest in real estate and alternative assets as fast as they’d like--so more is left in stocks. The cuts in the target percentages for those assets also reflect that reality, the fund says.