New Emerging Market Standard Emerges at CalPERS

February 21, 2002 ( - The investment committee of the California Public Employees' Retirement System (CalPERS) has voted to pull its investment from countries that do not meet human rights standards for its emerging markets investments.

The pension fund’s board has adopted a new permissible country review process that takes into account broad financial factors as well as transparency, political stability and labor practices/standards.  The Board’s decision was based on a report by the System’s pension consultant Wilshire Associates, according to CalPERS.

New standards assign a 50% weighting for the following factors:

  • political stability 
  • financial transparency 
  • labor standards

Based on its new review process, CalPERS will begin taking a public equity position in Poland and Hungary.  And, as a result, the nation’s largest public pension system will sell off investments over time in:

  • the Philippines
  • Thailand 
  • Indonesia 
  • Malaysia

The $150 billon fund has some $1 billion invested in passive emerging markets strategies.

The measure, adopted by a 9-3 vote, could trigger other funds to take a more aggressive stance on human rights as an investment factor.

Those four Southeast Asian countries join Jordan, India, Egypt, China, Colombia, Pakistan, Venezuela, Sri Lanka, Morocco and Russia on CalPERS’ no-buy list – though these were already blocked for financial, not social, reasons.

The other half of the review is based on:

  • market liquidity and volatility
  • market regulation and investor protections
  • capital market openness
  • settlement proficiency
  • transaction costs

According to the report submitted to CalPERS by Wilshire Associates, the pension fund’s consultant, the Philippines appeared to miss the list for financial reasons, while Malaysia and Indonesia did poorly on human rights considerations. Thailand received a more mixed score, but still failed to make the grade.

CalPERS notes that its guidelines will allow fund managers to invest in the following emerging markets:

Czech Republic
South Africa
South Korea