The California Public Employees' Retirement System plans to invest $25-50 million in collateralized debt obligations in the coming months. The largest public pension fund in the U.S., with assets totaling approximately $136 billion, will likely make its first ever CDO investment before year-end, Mark Anson, cio, told sister publication Derivatives Week.
Anson said the Sacramento pension plan would invest in the equity tranche of a CDO because "you get more bang for your buck." CalPERS already invests in the underlying primary assets and is large enough to diversify its own portfolio, so it does not want to take unleveraged exposure, he added.
Anson said the giant pension fund would keep an open mind to CDO investment. "We are agnostic, we will look at both cash and synthetic," he said. "What we are looking for is the best structure."
A CDO researcher said the product is ideal for pension funds, if they have the flexibility to invest in it, because it pays an illiquidity premium and requires low staffing levels.