Sovereign Wealth Funds
CalPERS in Turbulent Times
How to steer a super tanker through a hurricane.
August 25, 2011
How do you steer a super tanker through a hurricane? Good question. I have no idea. But, (!) I think it’s probably something like driving CalPERS through the current financial turbulence: white knuckles on a steering wheel and straight on into the oncoming waves. No sudden turns.
But that’s just me rambling on. How about some insights from someone who actually knows what it’s like? How about we hear from the “Sage of Sacramento” — the “Management Geek” — the “CalPERS Chief Investment Officer” — the venerable Joe Dear.
Lucky for us, Mr. Dear recently took some time out to talk through what he’s been doing and thinking lately. So, without further ado, here’s some deep thoughts by Joe Dear:
On rebalancing: “When the mark went down a week ago Monday. That big drop. We found ourselves almost 5% below our global equity target of 50%, half the portfolio. We did what you’re supposed to do. We started rebalancing back up. So we were buyers of stock on Tuesday and Wednesday. By the end of the week, we’d recovered almost 4% of that 5% under with buys and then the natural increase that resulted from the improvement in the market.”
On tactics: “We’re a beta player for stocks so our move is underweight or overweight. It’s a risk off environment. We will balance off to our target in equities and fixed income and wait to see if we get some more clarity about what is going to happen.”
On strategy: “Well we overweighted emerging markets in our stock purchases, and that tells you the direction we’re moving. I’m very concerned about Europe. You see smoke coming from the credit conditions of the banks and the governments. Don’t know if there are going to be flames soon. And you really gotta wonder if the flames erupt if there will be enough water to put them out.”
To recap: 1) Investors should stick to their plans and have faith in the ship they’ve built. 2) Start de-risking where you can. 3) For the love of pete, stay out of Europe.
I already feel seasick.