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CalPERS Risk-Factor Approach to Asset Returns

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peopleHistorically, investors have heavily relied on the equity risk premium to reach annual return targets. The confidence of this model has been tested. Mean-variance optimization models did not help out asset owners during times of catastrophe. Like many large institutional investors, the California Public Employees’ Retirement System (CalPERS) is rethinking its approach to asset allocation and portfolio diversification. During the global financial crisis, both bonds and stocks dropped – the correlation between the two major asset classes turned positive. This paradigm shift from traditional asset classes to a risk-factor stance is still new territory. There is no industry standard or consensus on risk factors.

Economic Periods Length Prized Factors – Park Alpha
Decade of Lowered Inflation 1982-1991 Inflation
Rising Bull Market 1992-1999 Credit, Liquidity, Growth
Post-Tech Hangover 2000-2003 Real Interest Rates, Liquidity
Housing Boom 2004-2007 Growth, Political
Great Recession 2008-2011 Real Interest Rates
The Long Road to Recovery 2012-Present

 
Major events and crises force board members and investment staff to rethink their investment model. The theory of risk-factor allocation is that if a single risk factor harms a portfolio, the impact is confined within allocation to that risk factor. Investment consultants tend to look at average asset class returns. On the other hand, the risk-factor approach addresses the cause rather than effect. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Mergermarket Gets Ready to be Sold

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Private equity firm BC Partners hired Goldman Sachs Group Inc. and JPMorgan Chase & Co. to advise on the sales of Acuris. Acuris is a collection of financial news and data sites, which includes Mergermarket, Dealreporter, and Debtwire. In 2017, BC Partners sold around a 30% stake in GIC Private Limited.

Before the rebranding to Acuris, Mergermarket was part of The Financial Times Group until 2013 when it was sold off to BC Partners.

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Why Japan Post Sees Promise in Aflac

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Aflac Inc. is an American insurance company founded in 1955. The company is the biggest provider of supplemental insurance in the United States. Aflac also has major operations in Japan.

In December 2018, Japan Post Holdings (JPHLF) signaled it was spending US$ 2.64 billion for a 7-8 % stake in Aflac. The goal is that, in four years time, Aflac will become an affiliate of Japan Post. Japan Post hopes to accomplish this by becoming the largest voting shareholder of the company. The world’s 13th largest company, with 400,000 employees, Japan Post needs to expand to chase further growth, mainly because Japan Post expects the postal business to decline. Diversification is seen as the optimal route to long term stability for the holding company. Japan’s economy is worrying. Japan’s aging population means that many insurance companies are facing a shrinking customer base, Japan Post settled on a plan to expand overseas.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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RDIF and Development Agency of Serbia Agree to Explore Joint Investments

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The Russian Direct Investment Fund (RDIF) and the Development Agency of Serbia, also known as Razvojna agencija Srbije, reached an agreement to work together to identify attractive investment projects to strengthen bilateral economic ties and increase investment flows between Russia and Serbia. Russian capital and businesses are keen on investing in Serbia.

In addition, the two countries signed an agreement to cooperate on civil nuclear energy, according to state-owned Russian reactor builder Rosatom (Rosatom State Nuclear Energy Corporation). Rosatom continues to expand it business of nuclear cooperation deals in a wide number of countries.

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