The California Public Employees’ Retirement System has released a monthly investment update that hints to the constraints it may face as it seeks to rebalance its timberland portfolio.
The US pension, which managed $350.4 billion as of yesterday, said assets falling under the “core” classification represented just under half of its forestland assets at the end of December, falling short of their policy range of between 75 percent and 100 percent.
In contrast, the share accounted for by value-add investments, at nearly 39 percent, surpassed their target allocation of 25 percent.
“Given the illiquid nature of the real assets portfolio, staff anticipate a lag time to make the asset shifts required to bring the portfolio in line with the new strategic plan and policy,” CalPERS said. “The timing of any resolution remains uncertain.”
The pension also stressed that its debt service coverage ratio, at 0.78, remains below its policy objective of at least 1.25.
The document suggests CalPERS is exploring ways to steer the strategy towards its eventual objectives, notably by reviewing investment opportunities. The pension screened, and declined, a proposal in the run-up to year-end, its update says.
The above targets were set in 2016, as part of a new real assets policy that came into effect at the beginning of 2017. The revamped strategy set new parameters such as risk classifications, geographic ranges and leverage limits across the program and to each of its constituent portfolios.
This came after CalPERS consolidated infrastructure and real estate in a single real assets category, which the pension said was justified because of the asset classes’ similar investment characteristics, the slow pace of deployment in infrastructure and forestland, and the desire to foster cross-sector teamwork.