Stocks, Bonds
Apart from stocks, Calpers invests about 17 percent of its money in bonds, 14 percent in private equity, 9 percent in real estate, 4 percent in cash-equivalents, 4 percent in inflation- linked holdings such as commodities, and 2 percent in forestland and infrastructure such as airports and power plants.
“We held on to our allocation,” the 61-year-old Dear said. “We believed the markets were going to come back and we held our allocation at around 50 percent and that decision has been justified.”
In the years following its record losses, the fund also restructured its money-losing real-estate holdings, trimmed the number of private-equity managers it deals with, embraced more risk controls, built up a pool of cash and taught managers to better coordinate between asset classes.
Real Estate
After Calpers’ real-estate portfolio lost almost half its value by the end of the 2009 fiscal year, Dear set out to shrink leverage used to make purchases, got rid of underperforming managers, focus on core income investments such as rental apartments, industrial parks, offices and retail space. It also sold off a fifth of its speculative residential housing.
The real-estate unit returned almost 13 percent in 2012, averaging 6 percent in the past three years, though that’s still below its internal target of 10 percent.
Dear also encouraged the fund’s board to increase cash and Treasuries holdings in what he calls a “liquidity bucket” to have money on hand if needed quickly.
That’s because in 2008, the pension, which loaned shares to broker-dealers and short sellers for a fee, was forced to dump huge blocks of its stock holdings to raise cash as clients redeemed their loans. In the third quarter of 2008, Calpers for example sold 2.3 million shares of Apple Inc. for about $370 million, a stake that would have been worth $1.16 billion today.
Private Equity