CalPERS Opens Investment Doors to Once-Prohibited Emerging Markets

According to a press release, CalPERS had placed select emerging market countries – including Russia, China, Colombia, Egypt and Pakistan – off-limits to public equity investments based on country and market factors since 2002. However, the fund has now adopted a new principle-based policy to help guide managers in investing in these countries.

“Year by year, scores are improving, and many countries have responded to our standards for investing,” said Rob Feckner, CalPERS Board President, in the press release. “These gains indicate that our permissible countries
policy has improved business practices and addressed risk factors as well. Now it’s time for a broader, more cost-effective approach.”

A principles-based policy in lieu of a country list will result in cost savings of approximately $1 million a year in research services required to compile the list, according to CalPERS.

Before investing, managers will assess country and company prospects in terms of:

• Political stability and the development of democratic institutions and principles;
• Transparency of information, including elements of a free press; Harmful labor practices, including the use of child labor;
• Corporate social responsibility; adequate market regulation and liquidity;
• Commitment to free market policies and openness to foreign investors; Reasonable trading, settlement proficiency and reasonable transaction costs; and
• Appropriate disclosure on environmental, social, and corporate governance issues.

The emerging markets managers would report back annually to CalPERS on their application of the principles. CalPERS currently has $5.8 billion with six emerging markets managers – AllianceBernstein, Batterymarch, Dimensional Fund Advisors (DFA), Genesis, Lazard, and Pictet.