CalPERS Approves New Risk-Reduction Investment Strategy

On Wednesday, the full CalPERS board approved a new risk-reduction investment strategy, the Sacramento Bee reports (Kasler, Sacramento Bee, 11/18).

Background

CalPERS staff members presented the risk-reduction plan to the fund's board in August. The proposal aims to help mitigate financial risk amid cash shortfalls.

Under the plan, CalPERS will start shifting more money into safer investments, such as bonds.

The plan will incrementally reduce the fund's annual investment forecast from 7.5% to 6.5% (California Healthline, 11/18). The "discount rate" will drop each year in which CalPERS beats its forecasts by at least four percentage points (Sacramento Bee, 11/18).

The full reduction could take longer than 20 years.

The more conservative investments will shrink CalPERS' future returns. As a result, taxpayers likely will need to cover more of the cost.

On Tuesday, the CalPERS finance and administration committee voted 4-3 to approve the plan (California Healthline, 11/18).

Details of Vote

The fund's board voted 7-3 to approve the plan.

According to the Bee, board members said the strategy is a smart plan to address unstable investment markets.

Board member Priya Mathur said, "This is a real historic moment."

However, board member Richard Gillihan said the plan could be more aggressive to reduce investment risk more quickly. He said, "I think we're missing an opportunity to be bold" (Sacramento Bee, 11/18).

Brown's Reaction

In response to the vote, Gov. Jerry Brown (D) in a statement said, "I am deeply disappointed that the CalPERS Board reversed course and adopted an irresponsible plan that will only keep the system dependent on unrealistic investment returns." Brown added, "This approach will expose the fund to an unacceptable level of risk in the coming years" (Office of the Governor release, 11/18).