CalPERS Lifts Equity Portion in Its 1st Reallocation Since ’02

The California Public Employees’ Retirement System, the biggest U.S. pension fund, will raise its target allocation for stocks and reduce its goal for real estate holdings under its first allocation shift since 2002.

The $177-billion pension fund’s investment committee Monday approved 1-percentage-point boosts in its U.S. and international equity targets and 1% reductions in its private equity and real estate targets.

CalPERS said the new mix better reflected the fund’s actual holdings.

As a result, the change will save on transaction costs from rebalancing the fund’s portfolio as well as keep performance from diverging too far from the fund’s benchmark, Sean Harrigan, president of the CalPERS board, said in a statement.

“We are in a seller’s real estate market and there are opportunities for us to prune our portfolios and take some profits,” said Harrigan, who will lose his CalPERS board seat next year. “This combined with the increase in our stock portfolios from the market rebound requires us to make some minor allocation changes to keep our portfolio in check.”

Pension funds set targets for how to invest money to limit risk and earn enough to pay benefits. The fund frequently deviates from a target within a range that is set for each asset class.

The last time CalPERS changed its allocation targets was in October 2002, when it decided to raise targets for venture capital and buyouts and lower them for bonds after U.S. stocks had declined for three years in a row.