CalPERS Case: Introduction

1
CalPERS Case Introduction

• The CalPERS portfolio
• 1. What is CalPERS Investment strategy?
• 2. How has CalPERS allocated its investment
  assets w.r.t. the investment strategy?
• 3. What is the difference between managing
  investments by Indexing (passive) versus Active
  Management of investments?
• 4. Why has CalPERS focused on passive management
  of its investments?

2
CalPERS Case Introduction

• CalPERS porfolio (continued)
• 5. Would your investment approach be different
  if you were managing pensions for GE or IBM?
• CalPERS values/goals
• 1. What do you think about CalPERS social and
  financial responsibility criteria that it applies
  to its investments? Who benefits from this?

3
CalPERS Case Corporate Governance

• What is CalPERS approach to corporate governance?
  
• What does this approach do for CalPERS
  stakeholders? Who benefits? Who loses?
• Why doesnt CalPERS just vote their shares by
  selling them as many other large shareholders do?

4
CalPERS Case Corporate Governance

• How does CalPERS influence the companies it
  targets? What strategies does it apply? Were
  they successful?
• Examples
• Do you agree or disagree with the targets and
  issues CalPERS selected in 1991 such as GM, ITT,
  Avon, Texaco, WR Grace, Scott Paper.

5
CalPERS Case Executive Pay Issues

• Why did CalPERS identify Executive Pay as a
  governance issue for its target companies?
• What issues involving Executive Pay did CalPERS
  seek to change? Examples?
• How successful was CalPERS in being a catalyst
  for change in the practice of executive pay?

6
CAlPERS Case Take Away Points

• 1.
• 2.
• 3.
• 4.
• 5.

7
CAlPERS CaseGovernance

• CalPERS Approach to Corporate Governance
• 1. Select target firms that commit a governance
  sin - no more than 12 targets per year.
• 2. Criteria
• a. High institutional ownership of stock.
• b. High amount of CalPERS ownership.
• c. Poor performance of firm.
• 3. Tools shareholder resolutions, proxies,
  shareholder advisory committees.

8
CAlPERS Case Takeaway Points

• 1. Institutional Shareholders have some
  influence on corporate governance.
• 2. CalPERS uses the media to focus public
  opinion on targets and motivate board members to
  protect their reputations by being proactive vis
  a vis the CEO and entrenched managers.
• 3. Index investing is becoming more prevalent,
  creating incentives for more active institutional
  shareholders such as CalPERS.