Investment Restrictions Cause CalPERS to Miss Out

February 16, 2006 ( - California Public Employees' Retirement System (CalPERS) officials reported this week that restrictions placed on investments in emerging markets have caused the system to miss out on more than $200 million in potential profits.

Each year, the $206 billion fund ranks 27 developing nations through a complex scoring system to ensure that political instability, lax regulations or other factors do not jeopardize investments, according to the Sacramento Bee. For years, fast-growing countries such as China and Russia have earned failing grades.

Since the program was launched in August 2002, CalPERS’ $4.7 billion emerging markets portfolio has not kept up with benchmarks that are free of restrictions, including the FTSE All Emerging Index, the news report said. The lag is about two percent, or $203 million. The program has, however, generated a 35.4% annualized return in that time.

“We’re not investing in one of the fastest economies in the world – China,” said Karen Greene Ross, CalPERS representative for state Controller Steve Westly. “We would like to give our investment managers more flexibility.”   On Tuesday, several trustees suggested the fund take advantage of these markets by investing in depository receipts issued by Chinese and other foreign companies and traded on US and major international stock exchanges.