Wednesday, April 15, 2009

Calpers Seeks to Buy TARP Holdings

The California Public Employees’ Retirement System said it’s seeking opportunities to buy assets of Citigroup Inc. and other financial companies tied to the U.S. government’s $700 billion Troubled Asset Relief Program.

Calpers, as the largest U.S. public pension manager is known, said today it’s setting aside “billions of dollars” amid the credit crunch and is ready to deploy capital. It added that there’s a “glimmer of hope” in the stock market.

The pension fund is seeking to buy “some of the assets of these financial companies such as Citi and the others, assets that they’re trying to get off their balance sheets,” Henry Jones, a Calpers board of administration member, said in an interview after a speech in Seoul.

Calpers’s cost of managing its investments declined to the lowest level since 2004 after the value of fund holdings fell 27 percent this fiscal year, and it projects its investment costs will fall to $817 million in the 12 months that begin July 1, down from $1.04 billion last year, according to a report that will be presented to the fund’s governing board. That is the lowest since the fund spent $523 million in the fiscal year that ended June 30, 2004.

Calpers has broadened its asset allocation ranges to ensure more flexibility and plans to hold its investment review in May, about 18 months ahead of schedule, Jones said in the speech.

“The assumptions that we used 18 months ago no longer fit the present market,” he said. “There’s still a tremendous ocean of toxic debt out there. Even if we didn’t buy it, it’s done enough damage to our banks to affect all of us on Wall Street.”

The pension fund lost more than a quarter of its value in the first seven months of its current fiscal year, led down by stocks, real estate and commodities, according to its most recent investment activity report.

The MSCI World Index jumped 12 percent in the past one month as governments around the world stepped up efforts to stimulate their economies. The gauge has pared losses this year to 6.6 percent after last year’s 42 percent slump when the global economy sank into recession.

Calpers, with $175 billion in assets as of April 13, reached a record high of $260 billion in October 2007. The fund provides pension and health benefits to 1.6 million government workers, retirees and their families.

“Credit is still tight in the markets, but we’re able to raise enough cash to still make good deals and position ourselves for an eventual market turnaround,” Jones added.

The Sacramento, California-based fund invests 7.6 percent of its funds in cash, a category that calls for no allocation under targets established in December 2007, according to its Web site. The fund’s bond investments represent 24.8 percent of the total, more than the 19 percent target. It’s underinvested in equities, with 53.5 percent allocated there compared with a target of 66 percent.

Calpers has $500 million invested in South Korea, including a $100 million investment with Lazard Asset Management Plc last year, Jones said.

(from Bloomberg, April 15, 2009)

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