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CalPERS Investment Committee Open Session Workshop - September 16, 2013

Hedge Funds
by trusted insight posted 4years ago 12629 views
Discussion of Currency Hedging Program and other Asset Liability Management related topics. There are several components to this agenda item related to the Asset Liability Management (ALM) process that is currently ongoing. This material shall be presented in a workshop format: 1. Review of the Currency Overlay Program (Program) – An analysis of the results from inception in July 1992 through June 2013 shows an insignificant overall risk impact from hedging a portion of the foreign currency exposure. Additionally, staff identified major operational costs and risks related to the Program. Therefore, staff recommends eliminating the passive Currency Overlay Program as part of the ALM decision process. 2. Updated Capital Market Assumptions (CMAs) – As indicated at the June 2013 Investment Committee (IC) meeting, the CMAs for the Global Fixed Income (GFI) asset class (as currently specified) have been updated to reflect recent interest rate changes. Additionally, CMAs for a low volatility Global Equity component have been estimated with the assistance of Wilshire Associates and Pension Consulting Alliance. 3. Actuarial Risk Considerations and ALM Workshop Preparation – At the July 2013 Board Offsite, the CalPERS Actuarial Office demonstrated a model that reflected how the combination of investment return, volatility estimates and actuarial assumptions impact three characteristics identified as “risk considerations.” These risk considerations are: - The plan’s funded level, - The level of contributions, and - The volatility or change in the contribution level. An additional element of the July Offsite presentation contemplated “flexible de-risking” of the plan as a way to improve long-term sustainability. The material presented in this item will seek to further enhance the understanding of the risk considerations’ interactions and the de-risking topic.