CalPERS to Vote on Emerging Market Report Card Structure

November 12, 2004 ( - The California Public Employees Retirement System (CalPERS) board will vote on Monday on whether to change its report card system on emerging markets, a move that will be watched closely by governments and investors alike.

The massive pension fund will vote on whether to alter how it calculates the grades it gives to emerging markets, numbers that it uses to decide whether to invest or not, according to Dow Jones. If it chooses to adopt new rules based on the way it uses whole numbers and decimals in calculating scores, some countries may find themselves off the ‘Permissible Equity Markets List’, while others may find themselves on it.

CalPERS has been using its report card system for years, according to Dow Jones, and this would not be the first time it has tweaked its inner workings. Currently, countries are judged on a scale of one to three, with countries garnering a score of over two being ‘investable’. One of CalPERS’ advisors, Wilshire Associates, is recommending that the pension fund should not make wholesale changes to its report card system because doing so may lower the overall scores of some countries. Wilshire also says that the new system may bring with it a level of accuracy that has no practical application in the investing world, according to Dow Jones.

Initially, CalPERS rated foreign countries solely on financial factors such as trading costs, according to Dow Jones. However, in recent years the pension fund has added such factors as political stability and labor practices into its report card system in order to get a more accurate picture of financial robustness and stability abroad.

CalPERS does not actually invest a large portion of its funds in emerging markets – it had only 2% of its assets in such places at the beginning of the year – but what it does is watched closely by other pension funds, which may follow the pension giant in any major moves. Governments of countries that CalPERS ranks will also watch, as any move by the pension Goliath could have serious affects on their nation’s economy (See CalPERS: We’re Staying in the Philippines ).

CalPERS will also vote on Monday regarding a possible increase in asset allocation in hedge funds, another move that will be watched closely by other institutional investors (See  CalPERS May Move into Funds of Hedge Funds ).