Growing and protecting your retirement fund is Priya’s top priority. With the CalPERS Board and staff, Priya crafted a strategic approach to deliver on this commitment.
Set a realistic target rate of return
Setting a realistic target rate of return is important for both employers and members so that they can budget and plan for future retirement contributions and avoid costly surprises. CalPERS consulted several investment advisors and numerous other industry experts to determine an appropriate investment market outlook. The resulting sustained moderate growth projection led the Board to reduce the target rate of return from 7.5% to 7% over three years.
Optimize the investment portfolio
There are different types of investments (called asset classes) and each has advantages and disadvantages. Priya and the CalPERS Board are focused on getting the right mix of asset classes so that, over time, the retirement fund can grow as market conditions change. To this end, each investment type — such as stocks, bonds, private equity, and real estate — has its own role within the investment portfolio.
Stocks: CalPERS owns about 0.5% of more than 10,000 publicly listed companies around the world. By investing in a wide variety of stocks, CalPERS can capture the financial success of public companies. As a general rule, stocks are easy to buy and sell (liquid), which is an advantage. But stocks are also subject to greater swings in returns, a phenomenon called volatility. That's why stocks make up 50% of the investment portfolio but are not the only asset class that CalPERS invests in.
Bonds: About 28% of the CalPERS investment portfolio is in bonds. Bonds are less risky than stocks, provide liquidity, and generate some cash flow. But they deliver more moderate returns and are sensitive to inflation.
Private Equity: Private equity represents 8% of the investment portfolio. It is the only investment type projected to achieve higher returns over target over the next decade. This more concentrated, actively-managed investment type comes with higher risk and requires careful selection of highly skilled investment managers with deep industry expertise to deliver persistent performance.
Real Estate: Diversify growth risk (of stocks), protect against inflation and produce cash flow used to pay pension benefits, while delivering an attractive return.
Manage long-term environmental, social, and governance risks
CalPERS works hard to make sure that every California public employee — from the recent college graduate to the soon-to-be retiree — knows that their retirement will be there on the day they retire and for the rest of their life. To make good on this promise, CalPERS must forecast future risks to its investments and take action to mitigate those risks.
As the steward of your retirement, Priya thinks about how environmental, social, and governance issues — like climate change, fair labor practices, and corporate accountability — will impact the investments that CalPERS makes on behalf of our members.
For example, Priya, in collaboration with the Board and staff, has:
- Pushed for appropriate regulation to protect investors like CalPERS and our beneficiaries from the type of malfeasance that led to the global financial crisis in 2008
- Co-sponsored a new global initiative that challenges the top carbon-emitting companies worldwide — like Exxon and Shell — to incorporate climate issues in their business strategy so that they stay competitive in the face of changing regulations
- Encouraged companies to improve the diversity of their boards and executive teams, which has been proven to materially improve corporate performance