Muh Leverage
The $400 billion California Public Employees' Retirement System (CalPERS), the nation’s largest, announced it will enhance leverage and boost allocations to private equity managers in an attempt to goose returns. “Given the current low-yield environment, there are only a few asset classes with a long-term expected return clearing the 7% hurdle,” chief investment officer Ben Meng told the fund’s board of directors today. “Private assets clearly stand out. Leverage will increase the volatility of returns but Calpers can tolerate this.”
“We will have to live with the possibility of market drawdowns as the price for increasing the probability of achieving our ambitious rate of return,” Meng continued. “There is no alternative.”