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CalPERS Considers Using Portfolio Leverage if Economy Turns
CalPERS may adjust its investment strategy as part of an effort to prepare for economic downturns should quick action be required. The $365.1-billion pension fund’s CIO Yu Ben Meng noted one of the options under consideration is placing leverage on the portfolio, which would impact the total fund’s leverage policy.
That option surfaced when Ben Meng responded to a question from Lynn Paquin, a board designee, about potential investment policy changes staff could request in order to act more quickly during a market drawdown. He was quoted as saying, “one of the undesirable outcomes during a drawdown is we don’t have money to deploy to take advantage of a market dislocation. And, one of the ways to generate additional liquidity is put on leverage on the total fund. So, we borrow money.”
Ben Meng indicated a plan is currently being developed and would be presented to the investment committee to consider an investment policy change, if needed. CalPERS has entertained the use of leverage in the asset allocation work for years.
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