CalPERS

Complete Glossary of Investment Policy Terms

This Glossary identifies, defines, and clarifies the meaning of investment terms used by CalPERS in our investment policies. The purpose of the Glossary is to establish a uniform vocabulary of terms for users of these policies.

Choose from the letters below to find a specific CalPERS Investment Policy term or phrase. You'll also find information about the related policies and asset classes for each term.

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1934 Act - The Securities Exchange Act of 1934.

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Abiotic Risks - Risks to the health and well-being of forests that originate from non-biological sources such as wind, fire, snow and ice.

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Absolute Return Fund - An actively managed portfolio that aims to generate positive returns in both up markets and down markets, in part by managing its exposure to the broad market. An Absolute Return Fund's portfolio tends to utilize long and short positions, derivatives and leverage to accomplish its goal. An Absolute Return Fund is usually set up as a private partnership or an offshore corporation, and in almost all cases incorporates limited liability for passive investors.

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Absolute Return Strategic Advisor - A consultant or advisor to the Risk Managed Absolute Return Strategies Program with responsibilities that may include assisting Staff with the screening, evaluating, recommending, and monitoring of Absolute Return Funds for the program, or with assisting Staff in assessing strategic initiatives and policies for the program.

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Acquisition - Gaining the controlling interest over an asset, usually referring to one company buying out another.

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Active Asset Allocation - A form of asset allocation that seeks to increase returns and reduce risk by actively shifting allocations within a portfolio as market conditions change.

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Active Asset Allocation Return - The portfolio return attributable to deviations between actual and policy asset allocations. Returns can be attributed to two sources: the active asset allocation return and the benchmark-relative return of each asset class. The CalPERS asset allocation return is calculated by the Custodian.

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Active Investment Process - An investment process that involves a certain degree of active management as defined below. The objective of an active investment process is to outperform the broad market benchmark.

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Active Performance - The return of a portfolio that is in excess of its benchmark return. This is the return of the active portfolio.

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Active Portfolio - A portfolio that is managed with the expectation of earning investment returns in excess of those earned by its benchmark.

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Active Risk - The difference in the volatility of the returns in an active portfolio relative to the portfolio's benchmark.

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Active Risk - The volatility of the returns of the active portfolio.

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Adjustable Rate Security - Adjustable Rate Security is a broad description of a fixed income instrument whose rate is determined based on a pre-agreement between two parties. These instruments include floating rate, inverse floaters, leverage floaters and dual index floater securities.

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Advisory Committee - A group of investors in the partnership whose primary functions are to address certain partnership-related issues. Based on the roles and responsibilities outlined in limited partnership agreement, the Advisory Board may review conflicts of interest, approve valuation policies, review operating budgets, vote on partnership term extensions, and perform other duties as deemed appropriate.

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Advisory Committee - A group of investors in the partnership whose primary functions are to address certain partnership-related issues. Based on the roles and responsibilities outlined in limited partnership agreement, the Advisory Board may review conflicts of interest, approve valuation policies, review operating budgets, vote on partnership term extensions, and perform other duties as deemed appropriate.

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Agent - Individual authorized by another person, called the principal, to act in the latter's behalf in transactions involving a third party. Banks are frequently appointed by individuals to be their agents, and so authorize their employees to act on behalf of principals. Agents have three basic characteristics: 1) they act on behalf of and are subject to the control of the principal; 2) they do not have title to the principal's property; and 3) they owe the duty of obedience to the principal's orders.

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Alternative Solicitation Process - A process for identifying and selecting external asset managers utilizing the on-line Investment Proposal Tracking System. This process may target a particular strategy type, or may continuously assess submitted investment proposals and replaces a formal request for proposal.

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Amendment Fee - A fee charged by an underwriter or a group of underwriters for any amendment(s) to the Credit Instrument (Letter of Credit/Line of Credit), Reimbursement Agreement or Trust Indenture.

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American Depository Receipts (ADRs) - Receipts for the shares of a foreign-based corporation held in the vault of a U.S. bank. ADRs, which are denominated in U.S. dollars, allow U.S. investors to get exposure to foreign stocks within the U.S. stock exchanges.

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Amortized Cost Method - Valuations initially value debt securities at acquisition cost. The interest earned on each debt security (plus any discount received or less any premium paid upon purchase) is then accrued ratably during the remaining maturity of the security.

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Amortized Cost Method - The method of calculating a securities market value where the security is valued at the acquisition cost with adjustment for amortization of premium or accretion of discount.

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Annual Commitment Fee - A fee charged by an underwriter or a group of underwriters covering the period from commitment to defeasance.

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Appraisal - The act or process of developing an opinion of value. Though appraisal is a term occasionally used interchangeably with valuation, the term is most commonly used for USPAP-compliant real estate valuation work performed by an appraiser within North America.

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Appraisal Institute (AI) - A global membership association of professional real estate appraisers whose focus is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide.

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Appreciation Return - The percentage change in the market value of a property or portfolio, adjusted for capital improvements and partial sales, over a period of analysis.

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Arbitrage - The simultaneous purchase and sale of two instruments for the purpose of capturing a pricing disparity between them. The instruments do not need correlated price movements.

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Arbitrage - The execution of a transaction having no or minimal risk or market exposure to profit from a mis-pricing between the instruments.

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Arbitrage - The simultaneous purchase and sale of two instruments for the purpose of capturing a pricing disparity between them. The instruments do not need correlated price movements.

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Asset Allocation - The process of dividing investments among different types of assets to optimize risk and return.

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Asset Based Loans - Secured debt that is loaned to primarily non-investment grade borrowers for mostly working capital, acquisitions, turnarounds, growth financing, debtor-in-possession financing (DIP Financing), exit financing, and corporate recapitalization/reorganizations.

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Asset Class Allocation - The net long market value of all non-derivative securities plus the net long futures-equivalent notional value of all derivatives.

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Asset Class Tracking Error - The expected or ex ante annualized standard deviation of the return difference between an asset class and its assigned strategic benchmark as calculated from the Investment Office Risk Management system.

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Asset Risk - Asset Risk is the risk of holding assets proportionally different from the Index.

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Asset-Backed Security - A security collateralized by assets such as automobile loans, agricultural equipment loans, and credit card loans. The loans are securitized by the issuer and usually placed with a trustee.

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Asset-Backed Security - A security collateralized by assets such as automobile loans, agricultural equipment loans, and credit card loans. The loans are securitized by the issuer and usually placed with a trustee.

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Assisted Living - Assisted living refers to properties that include multi-unit residential facilities with supportive hospitality services such as meals, housekeeping, transportation, and social programs, as well as 24-hour protective services and personal care assistance.

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Authority or Agency - A state or local unit of government created to perform a single activity or a limited group of functions and authorized by the state legislature to issue bonded debt.

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Authority or Agency - A state or local unit of government created to perform a single activity or a limited group of functions and authorized by the state legislature to issue bonded debt.

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Average Life - The average length of time expected to take to retire a debt obligation through amortizing payments, through serial maturity, or sinking funds.

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Back-Test - The calculation of historical, hypothetical results that could have been obtained from a particular investment process or strategy.

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Bank Bonds - Bonds, notes or other evidences of indebtedness that are held by or have been purchased by CalPERS pursuant to its obligation to advance funds under any of the Letters of Credit or Lines of Credit issued by the Credit Enhancement Program pursuant to the Statement of Investment Policy for Credit Enhancement Program.

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Banker's Acceptance - A draft drawn on a bank ordering payment of a particular sum to a specified party at a specified future date. Under a prearranged agreement, these drafts are "accepted" by banks, indicating a willingness to make such payments at the stated time.

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Barclays Capital International Fixed Income Index - The index covers the available market for foreign currency-denominated government bonds. It contains an all-inclusive universe of institutionally traded bonds. It includes all fixed rate bonds with a remaining maturity of one year or longer with amounts of at least the equivalent of U.S. $25 million outstanding. The index excludes floating or variable-rate bonds, and private placement-type securities. The Index provides an accurate, replicable fixed income benchmark for market performance. It measures the total return performance of the foreign currency-denominated government bond market. The index captures returns in U.S. dollars.

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Barclays Capital Long Liability - A custom index developed by Lehman Brothers composed of dollar-denominated securities issued in the United States with a focus on longer maturity securities that have an issue size of at least $200 million. The index has fixed weights of 30 percent mortgages, 24 percent investment grade corporates, 3 percent Yankee Sovereigns, 40 percent U.S. governments, and 3 percent high yield. The index is considered appropriate for CalPERS, due to the long nature of the CalPERS' liabilities.

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Benchmark - A set of securities with associated weights that providea a passive representation of a manager's investment process. The benchmark return is usually used to measure a manager's performance results.

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Benchmark - A set of securities with associated weights that provides a passive representation of a market segment. A benchmark's return is often used as a comparative measure of a manager's performance results in an active portfolio.

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Benchmark - A set of securities with associated weights that provides a passive representation of a manager's investment process. The benchmark return is usually used to measure a manager's performance results.

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Benchmark - A set of securities with associated weights that provides a passive representation of a market segment. A benchmark's return is often used as a comparative measure of a manager's performance results in an active portfolio.

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Benchmark - A set of securities with associated weights that provides a passive representation of a market segment. A benchmark's return is often used as a comparative measure of a manager's performance results in an active portfolio.

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Benchmark Index - The benchmark index will be a standard to judge the performance of the portfolio. A benchmark index may be a subset of a market index after screening for sufficient liquidity or other criteria.

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Benchmark Risk - Benchmark Risk addresses whether the index chosen is the appropriate reference point for the program in question.

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Best Execution - The ability to make efficient trades, taking into consideration factors such as: the price, the size of an order, the trading characteristics of the security, and the likelihood that an order will be fulfilled.

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Beta - A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole

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Beta - A measure of the volatility, or systemic risk, of a security or a portfolio in comparison to the market as a whole.

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Beta - A number describing the correlated volatility of an asset in relation to the volatility of the market or benchmark that said asset is being compared to.

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Bio-fuel - Fuels derived from biological sources such as ethanol produced from wood or corn.

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Biodiversity - The variation of taxonomic life forms within a given ecosystem.

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Biotic Risks - Risks to the health and well-being of forests that originate from biological sources such as insects, mammals and fungi.

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Bond - A unit of debt, $1,000 of principal or par amount. For 200 years municipal bonds were sold in $1,000 denominations. Since the mid-1970s the minimum bond denomination has been $5,000; nevertheless, "A Bond" is bought, sold, referred to, and priced as if it were $1,000.

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Bond - A unit of debt, $1,000 of principal or par amount. For 200 years municipal bonds were sold in $1,000 denominations. Since the mid-1970s the minimum bond denomination has been $5,000; nevertheless,

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Break-Even Analysis - Uses results from the scenario analysis. Since all projections should be viewed as risky, evaluating the sensitivity of the projected return to adverse market movements is critical. The break-even analysis calculates the movement required to reduce the sector or portfolio returns to a specified level at some horizon. This analysis creates a form of risk/return ratio. The higher the break-even value, the more the cushion against an adverse movement in rates.

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Broker - A firm that charges a fee or commission for executing an investor?s buy and sell orders.

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Buyout - The purchase of all or part of the stock or assets of a company through the use of debt and equity. The company may be privately or publicly owned.

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California Emerging Market Investments - California Emerging Market Investments shall focus on investment opportunities in traditionally underserved markets located in California. By way of example, underserved markets would include urban and rural areas undergoing or in need of revitalization where there are assets (e.g. an available labor pool, underutilized infrastructure) conducive to business development.

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Call Risk Analysis - Examines the portfolio's callable securities and estimates the amount of principal returned for a given drop in interest rates.

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Callable Securities - Investments that permit the issuer to redeem the security prior to final stated maturity on, or after, specified dates at specified prices.

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CalPERS Custom Daily LIBOR Index - An index developed by State Street Bank to track the monthly return of the One-Month LIBOR. The Index is considered appropriate for the HQL Fund, due to the short nature of the HQL fund and the near universal use of LIBOR as a benchmark in the front end of the yield curve. The Index is identified within the State Street Bank system by the code VI7.

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CalPERS Custom Wilshire 2500 Index - The Wilshire 2500 Index, excluding tobacco stocks, and with dividends reinvested. The standard Wilshire 2500 comprises the top 2500 securities of the Wilshire 5000 Index, including Real Estate Investment Trusts and tobacco stocks, based on market capitalization, and is reconstituted annually. The Wilshire 5000 is an index that measures the performance of all U.S.-headquartered equity securities with readily available price data.

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CalPERS Financial Times Stock Exchange (FTSE) All World, ex-US, ex-Tobacco, Capitalization Weighted Index - The benchmark for the international equity asset class. The benchmark is created by Financial Times and reflects specific customizations, such as the exclusion of tobacco stocks as identified by the Investor Responsibility Research Center. The benchmark can be broken down into its underlying countries.

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CalPERS Financial Times Stock Exchange All World, ex-US, ex-Tobacco - The benchmark for the international equity asset class. The benchmark is created by Financial Times and reflects specific customizations, such as the exclusion of tobacco stocks as identified by the Investor Responsibility Research Center. The benchmark can be broken down into its underlying countries.

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CalPERS Vehicle - A partnership, limited liability company or other investment vehicle managed by an External Manager in which CalPERS is the majority (or greater) investor and that is organized in order to invest in other External Managers, i.e., a fund of funds.

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Capital Allocation - The process of distributing resources among different types of strategies.

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Capitalization Weighted - A weighting method based on the equity market capitalization of a stock. Market capitalization is calculated by multiplying the total outstanding shares of a stock by its price per share.

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Caps - Designed to provide insurance against the rate of interest on a floating rate loan rising above a certain level (known as the cap rate).

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Carbon Sequestration - The accumulation and storage of elemental carbon.

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Cash - Money in the form of bills or coins (sometimes referred to as currency) that is typically used in the payment of goods and services

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Cash Buffer - An amount of the portfolio funds invested in cash equivalent securities, used for varying purposes, such as to avoid the incursion of a debit balance.

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Cash Commodity - A physical commodity, not a commodity future, the prices of which can be different for a variety of reasons

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Cash Equivalents - Includes money market instruments, obligations of the U.S. government and its agencies, commercial paper, bank time deposits, certificates of deposit, banker's acceptances, repurchase agreements, and money market funds as defined under SEC Regulation 270.2a-7.

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Cash-Like Security - A fixed income security with a maturity of less than 91 days and a credit rating of A1/P1 or equivalent or higher.

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Certificate of Deposit - A debt instrument issued by a bank that pays interest on either a fixed or floating rate, periodically or at maturity and principal when it reaches final stated maturity.

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Certificates of Participation (COP) - A form of lease revenue bond that permits the investor to participate in a stream of lease payments, installment payments, or loan payments relating to the acquisition or construction of specific equipment, land, or facilities. In theory, the certificate holder could foreclose on the equipment or facility financed in the event of default, but so far no investor has ended up owning a piece of a school house or a storm drainage system. A very popular financing device in California since Proposition 13, because COP issuance does not require voter approval. A COP is not viewed legally as "debt" because payment is tied to an annual appropriation by the government body. As a result, a COP is seen by investors as providing weaker security and often carry ratings that are a notch or two below an agency's general obligation rating.

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CFA Institute - A global membership organization that establishes and interprets the Global Investment Performance Standards (GIPS).

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Chief Compliance Officer - Heads the CalPERS Office of Enterprise Compliance which ensures and promotes compliance awareness in the daily business processes for investments, health and retirement.

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Chief Investment Officer - Heads the CalPERS Investment Office and works with the Investment Committee to develop a long-term investment policy and asset allocation strategy for the Public Employees' Retirement Fund.

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Chief Investment Officer - Heads the CalPERS Investment Office and works with the Investment Committee to develop a long-term investment policy and asset allocation strategy for the Public Employees Retirement Fund.

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Chief Investment Officer - Heads the CalPERS Investment Office and works with the Investment Committee to develop a long-term investment policy and asset allocation strategy for the Public Employees' Retirement Fund.

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Chief Investment Officer - Heads the CalPERS Investment Office and works with the Investment Committee to develop a long-term investment policy and asset allocation strategy for the Public Employees' Retirement Fund.

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Chief Investment Officer - Heads the CalPERS Investment Office and works with the Committee to develop a long-term investment policy and asset allocation strategy for the Public Employee's Retirement Fund.

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Chief Operating Investment Officer - Leads the administrative and operational management of the Investment Office. This role includes extensive interaction with the Investment Committee and Policy Subcommittee regarding a broad base of issues, including Investment Policy, communication across asset classes, and management of compliance and audit related issues.

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Clawback Provision (Lookback Provision) - A provision within the partnership agreement that allows for a review of the total profit distributed by the partnership at the end of a defined period. The clawback is a mechanism to recapture overpayments to the general partner or its limited partners if either party received more than their stated carried interest.

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Closed-end Funds - These are mutual funds professionally managed by an investment company with a finite number of shares issued. Closed end funds may be considered to be a derivative instrument as a component of their unit valuation is derived from the underlying value of the investments held by the fund.

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Co Investment - A Direct Investment made by CalPERS where CalPERS has an existing commitment to a fund which is also investing in the company.

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Co-investment - Co-investments are investments alongside Commingled Fund investments. Co-investments may be directly or indirectly owned and managed. Whereas Managed Co-investments may be managed by a general partner or other external manager, Direct Co-investments typically involve a greater degree of internal management discretion and ownership control. Co-investments may be investments in the same security or a different class of security than the class held by the fund investment.

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Collateral - Assets used as a support for financial risk, and can be used to fulfill financial obligations. In the context of futures, the collateral on deposit as margin in brokerage accounts is typically low risk financial assets such as cash, Treasury bills or bonds held by the futures brokerage firm as security against adverse market moves of futures positions.

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Collateral Pool (Cash Collateral) - Cash collateral provided by the borrower of a securities lending transaction. The collateral is then pooled and invested in short-term securities, earning an incremental return.

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Collateralized Bond Obligation (CBO) - A structured debt secruity backed by a portfolio consisting of secured or unsecured bonds issued by a variety of corporate and structured finance issuers.

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Collateralized Debt Obligation (CDO) - A structured debt security backed by a portfolio consisting of secured or unsecured senior or junior bonds issued by a variety of corporate or sovereign obligors and secured or unsecured loans made to a variety of corporate commercial and industrial loan customers of one or more lending banks.

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Collateralized Loan Obligation (CLO) - A structured debt security backed by a portfolio consisting of secured or unsecured loans made to a variety of corporate commercial and industrial loan customers of one or more lending banks.

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Collateralized Mortgage Obligation - A mortgage-backed security that pools together mortgages and separates the cash flows into short, medium, and long classes (often called tranches), allowing a wider range of risk and return characteristics than in the more homogeneous pass-through market.

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Collateralized Mortgage Obligation (CMO) - A mortgage-backed security that pools together mortgages and separates the cash flows into short, medium, and long classes (often called tranches), allowing a wider range of risk and return characteristics than in the more homogeneous pass-through market.

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Commercial Mortgage Backed Security - Securities collateralized by assets that are commercial mortgage loans.

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Commercial Paper - An unsecured promissory note issued in the open market to raise short-term funds representing the obligation of the issuing entity.

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Commingled Fund - An investment vehicle that pools individual accounts of multiple investors. Each account holder owns units of the commingled fund similar to holding shares in a mutual fund.

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Commingled Fund - An investment vehicle that pools individual accounts of multiple investors, which includes CalPERS. Each account holder owns units of the commingled fund similar to holding shares in a mutual fund.

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Commitment - A general partner's or limited partner's legal obligation to provide a certain amount of capital to a partnership.

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Commodities and Futures Trading Commission (CFTC) - An agency of the U.S. federal government that regulates the U.S. commodity futures and options markets. The CFTC is responsible for insuring market integrity and protecting market participants against manipulation, abusive trading practices, and fraud.

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Commodity - A commodity is a good that can be traded and delivered. The prices of commodities are determined on the basis of an active market. Typically commodities are of uniform quality and are produced by many different producers. Physical commodities, which can be stored, include energy (oil and its products, natural gas), metals (both industrial and precious), and agricultural products (grain, livestock, other ?softs?). Non-physical commodities include electricity and emission credits

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Commodity Trading Advisors - Investment Managers who primarily or exclusively employ the global futures and options markets. These managers run funds which are sometimes referred to as "managed futures" funds. Commodity Trading Advisors tend to provide returns that have a strong trend following component and a positively skewed-return distribution. Commodity Trading Advisors must be registered with the Commodity Futures Trading Commission (CFTC) unless they are excluded or exempted from registration.

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Common Factor - An element of return that influences many securities and, hence, is a "common factor" in the returns on those securities. By virtue of their common influence on many stocks, common factors contribute to market return as well as residual returns of the stocks that they influence most. Some common factors for domestic equity are capitalization, beta, price/earnings, price/book, interest sensitivity, and yield.

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Common Factor Return - A portfolio?s or individual asset?s return component that is attributable to exposure to a particular common factor. This is derived from the unique return attributed to the common factor.

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Common Factor Risk - The risk attributable to the effects of common factors.

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Community Center - Retail property that serves customers residing within a three-to-six mile radius. Community shopping centers offer general merchandise and provide convenience for consumers by supplying groceries, drugs, and other services. The size range is typically 100,000-350,000 square feet of shopping area. The projects typically incorporate at least and two or more anchors tenants.

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Concentrated or Strategic Block Funds - These are funds that focus their investments in relatively few companies. Their intent is usually to gain board of director?s representation in undervalued but fundamentally sound going concerns, and then proactively work with management, boards of directors and shareholders on major issues of strategy, capital structure, management and performance.

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Concentration Risk - The risk of loss because of the concentration of exposure to a specific instrument, individual transaction, industry, or country.

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Consultant - Consultant refers to individuals or firms, and includes Key Personnel of Consultant firms, who are contractually retained or have been appointed to a pool by CalPERS to provide investment advice to CalPERS but who do not exercise investment discretion.

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Continuing Care Retirement Community - Continuing care retirement communities refer to senior housing properties that provide a full continuum of care to meet the changing needs from independent living to nursing care.

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Convertible Arbitrage - A hedge fund strategy that typically involves purchasing a convertible security and simultaneously shorting the common stock of the same company. The convertible security can be the company's preferred stock or debt, secured or unsecured.

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Convertible Bond - A bond that has a provision that permits conversion to the issuer's stock at some fixed ratio.

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Convertible Mortgage - An investment structure wherein the lender (CalPERS), receives mortgage interest and an option to convert a portion or all of the loan balance into equity.

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Convertible Participating Mortgage - An investment structure wherein the lender's (CalPERS) return consists of mortgage interest plus potential contingent interest, expressed as a percentage of property operating cash flow and/or property appreciation upon sale or refinancing, and where the lender has an option to convert a portion or all of the loan balance into a percentage of equity.

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Convexity - The price change from a move in interest rate that cannot be explained by duration only. Positive convexity (when price rises more than expected and falls less) comes at a cost (lower yield). Negative convexity (price rises less than expected and falls more) usually comes with higher yield.

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Convexity Risk - Convexity Risk is the downside risk of an equal move up or down in interest rates, causing greater price loss than price gain.

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Corporate - Securities issued in the U.S. market by U.S. corporations or foreign corporations (Yankee bonds).

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Corporate Actions - An action taken by a company that causes a material change in structure including, but not limited to, name, price, shares, capitalization, or other such events. Typical corporate actions include tender offers, mergers, Dutch auctions, and spin-offs.

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Corporate Restructuring (Buyouts) - Investments in the form of equity and/or debt of a public or private company designed to restructure the current capital structure of the company, including debt and equity buybacks, exchange offers and refinancings. Related terms include leveraged buyouts, management buyouts, employee buyouts, and buy-and-build strategies.

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Corporate Sector - As defined by CalPERS' corporate investment managers in BlackRock Solutions, Aladdin product. Examples of sectors include banking, independent finance, diversified telecom, etc.

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Counter Party - The entity which is in the opposing position to a transaction.

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Counter Party Risk - The risk that CalPERS will have difficulty enforcing the provisions of a contract (Also known as "legal" risk).

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Counterparty Risk - The risk that CalPERS will have difficulty enforcing the provisions of a contract (Also known as ?legal? risk).

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Country Risk - Country Risk is the risk of holding the securities of countries different from the Index.

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Credit Accommodation - The term generally refers to a guaranty executed by CalPERS whereby CalPERS agrees to pay the debt obligation of an entity, in the event the entity fails to pay the debt obligation. The entity will usually be a limited partnership or limited liability company, and will be majority-owned by CalPERS. The debt obligation that CalPERS guarantees will be evidenced by an extension of credit (e.g., loan, line of credit, or other form of credit facility) by a financial institution to the entity. The benefit provided to CalPERS is that the guaranty will tend to lower the borrowing cost for the entity and should, in turn, enhance the overall return to the real estate investment. Guarantees become a contingent liability on the CalPERS' overall balance sheet and should be used only when they provide economic benefit. Credit accommodation differs from credit enhancement in that a credit accommodation is not rated and does not use CalPERS' Credit Enhancement Program (CEP) rating (either implied or explicitly). In addition, Credit Accommodation is made for an entity in which CalPERS has an existing, or proposed, ownership interest. Credit enhancement is the use of CalPERS' balance sheet, through the program rating, in which CalPERS has no initial ownership interest and where CalPERS receives explicit consideration for the enhancement.

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Credit Accommodation - A guaranty executed by CalPERS whereby CalPERS agrees to pay the debt obligation of an entity, in the event the entity fails to pay the debt obligation. The entity will usually be a limited partnership or limited liability company, and will be majority-owned by CalPERS. The debt obligation that CalPERS guarantees will be evidenced by an extension of credit (e.g., loan, line of credit, or other form of credit facility) by a financial institution to the entity.

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Credit Accommodation Outstanding - The total amount of credit accommodation that is currently being utilized on investments.

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Credit Default Swap - A credit derivative transaction in which two parties enter into an agreement, whereby one party pays the other a fixed periodic coupon for the specified life of the agreement. The other party makes no payments unless a credit event, relating to a predetermined reference asset, occurs. If such an event occurs, the party will then make a payment to the first party, and the swap will terminate. The size of the payment is usually linked to the decline in the reference asset's market value following the determination of the occurrence of a credit event.

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Credit default swap spreads - A credit default swap spread is the cost per annum to the buyer of a credit default swap for protection against a credit default event.

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Credit Enhancement - The term is used in context of CalPERS Credit Enhancement Program (CEP). It refers to instruments whereby CalPERS' CEP credit rating is used to strengthen the credit rating of a lower-rated entity in bond or note financing transaction through either liquidity (e.g. standby bond or note purchase agreements, lines of credit) or credit guarantees or both liquidity and credit guarantees (e.g. letters of credit). Through the use of these instruments CalPERS' CEP credit rating is substituted for that of a lower rated entity in exchange for a fee. Such enhancements become a contingent liability upon CalPERS' overall balance sheet.

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Credit Linked Note (CLN) - A CLN is an investment structure that issues securities which are purchased by investors. The proceeds from the investors are placed into a trust and invested into a portfolio of loans or securities. The returns on the portfolio are passed through to the holders of the securities issued by the structure.

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Credit Mortgages - Defined as loans or securities that are generally backed by lease structures. The primary underwriting analysis and source of repayment are clearly based on the credit-paying ability of the tenant or the borrower directly as opposed to the income-producing ability of the real estate itself.

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Credit Rating - A current opinion of an obligor's overall financial capacity (its creditworthiness) to pay its financial obligations. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. In the case of split ratings, the higher rating of either Moody's, Standard & Poor's, or Fitch Investor Services shall apply.

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Credit Related - Investments in Distressed Securities, Mezzanie, Debt, Turnaround strategies or other similar debt related strategies.

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Credit Risk - Credit Risk is the uncertainty surrounding the borrower?s ability to repay its obligations.

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Crossover Funds - These are hedge funds that contain both a public markets component and a private markets component. Generally, the public market component is in the form of a long/short strategy.

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Currency - The monetary unit of a sovereign state.

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Currency Risk - The risk of hedging currency differently than the index.

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Custodian - A bank or other financial institution that provides custody of stock certificates and other assets of an institutional investor.

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Customized Investment Accounts - An investment structure in which CalPERS partners with a firm that has distinct investment expertise in an industry, geographic region or investment style and has demonstrated the ability to provide top quartile returns. Other than the General Partner, CalPERS would be the sole investor. This structure may have an individual mandate or may invest alongside other similarly structured funds in the same investments with different terms.

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Customized Investment Accounts - An investment structure in which CalPERS partners with a firm that has distinct investment expertise in an industry, geographic region or investment style and has demonstrated the ability to provide top quartile returns. Other than the General Partner, CalPERS would be the sole investor. This structure may have an individual mandate or may invest alongside other similarly structured funds on the same investments with different terms.

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De minimis - Trifling, minimal. So insignificant that a court may overlook it in deciding an issue or case.

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Debt Financing Amount - Refers to any debt financing amounts committed to, by, or on behalf of a relationship. May include, but is not limited to, public, private, secured or unsecured, fixed or variable rate credit lines, subscription lines, credit guarantees, credit accommodations, credit enhancements, property debt, portfolio debt, joint venture or entity debt for commingled funds, separate accounts or targeted transactions.

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Debt Limit - The maximum statutory or constitutional amount of debt that the general obligation bond issuer can either issue or have outstanding at any time.

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Debt Service Coverage (DSC) - The annual net operating income divided by the annual debt service.

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Debt Service Coverage (DSC) - The annual net operating income divided by the annual debt service.

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Debt Service Coverage Ratio - The annual net operating income divided by the annual debt service.

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Decision Factors - A measure or characteristic used for relating strategic goals to a specific asset allocation decision.

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Default - Failure to pay in a timely manner principal and/or interest when due, or a Technical Default, the occurrence of an event as stipulated in the Indenture of Trust resulting in an abrogation of that agreement. A Technical Default can be a warning sign that a default on debt service is coming, but in reality actual debt service interruption does not always occur if the problems are resolved in time. A Technical Default will almost always drive down the price of a bond in secondary market trading.

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Delivery Versus Payment Repurchase Agreement - A short-term, often overnight, sale of securities with an agreement to repurchase the securities at a slightly higher price. In a Delivery Versus Payment Repurchase Agreement, the securities used as collateral are delivered to the custody bank of the investor.

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Delta of an Option - The ratio of a change in the value of an option to a change in the value of the underlying security for a small change in the value of the underlying security.

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Derivative - An instrument whose value is based on the performance of an underlying financial asset, index, or other investment. Classes of derivatives include futures contracts, options, currency forward contracts, swaps, and options on futures.

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Derivative - An instrument whose value is based on the performance of an underlying financial asset, index, or other investment. Classes of derivatives include futures contracts, options, currency forward contracts, swaps, and options on futures.

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Derivative - An instrument whose value is based on the performance of an underlying financial asset, index, or other investment. Classes of derivatives include futures contracts, options, currency forward contracts, swaps, and options on futures.

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Derivative - An instrument whose value is based on the performance of an underlying financial asset, index, or other investment. Classes of derivatives include futures contracts, options, currency forward contracts, and swaps.

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Derivative - An instrument whose value is based on the performance of an underlying financial asset, index, or other investment. Classes of derivatives include futures contracts, options, currency forward contracts, swaps, and options on futures.

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Derivatives - A derivative is broadly defined as a financial instrument whose value, usefulness and marketability is derived from or linked to the value of an underlying security, commodity or index that represents either direct ownership of an asset or the direct obligation of an issuer, otherwise known as the cast market instrument.

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Developed Fixed Income Market - A high-income country, as defined by the World Bank, that most investors consider to have a well-developed operating and regulatory structure for its capital markets. Generally, countries included in the Financial Times-Actuaries Index are considered to be developed markets.

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Developed Real Estate Market - Markets domiciled in high-income countries, as defined by the World Bank, that most investors consider to have a well-developed operating and regulatory structure for its capital markets. These markets are included in the FTSE Benchmark Classification as Developed Markets.

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Developmental - Creating an investment process or category based on new research, operations or strategy.

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Direct Debt - A noncontingent financial obligation, including issued bonds, borrowed funds, and unsettled loss positions on non-exchange traded contracts.

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Direct Investment - An investment that is made directly or indirectly by CalPERS in a company.

Direct Investment - An investment that is made directly or indirectly by CalPERS in a company.

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Direct Investments - An investment in which CalPERS has ownership interest in a property or group of properties.

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Direct State Government Issued Debt - Any bond or security directly issued by state governments (voter or non-voter approved), including but not limited to, General Obligation debt, Tax and Revenue Anticipation Notes, Tax Anticipation Notes, Revenue Anticipation Warrants, and Revenue Anticipation Notes. Where the state has taken over the underlying municipal government finances, such issuer automatically acquires implicit/explicit state-level support, and this will count towards the direct state government issued debt limit.

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Directional Trading - A strategy used by investors that open positions, either long or short, on the belief that they are able to correctly predict the movement of price in a security, industry, or market. This strategy is usually employed on equity securities by hedge funds that make directional bets on value/growth, large cap/small cap, net long position or net short position.

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Director - A member of the Board of Directors of a publicly traded corporation in which CalPERS invests.

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Disclosable Interest - Disclosable Interest is any interest or circumstance that may give rise to an actual, potential or perceived Conflict.

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Dismissal - Termination of the investment management contract with CalPERS, by requesting that the external investment manager resign or recommending contract termination to the Investment Committee.

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Disposition Amount - Refers to any amounts for disposition, of any investments amounts committed to a relationship. May include, but is not limited to, annual dispositions, multi-year dispositions or commitments to commingled funds, separate accounts or targeted transactions.

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Distressed Securities - Debt or equity securities of companies that are in financial distress. These securities tend to trade at significant discounts and attract investors that perceive a turnaround.

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Diversification - Investing in multiple assets to avoid or reduce the exposure to any one source of risk.

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Diversification - Investing in multiple assets to avoid or reduce the exposure to any one source of risk.

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Dividend Reinvestment Program - A plan offered by a corporation in which shareholders may purchase additional shares with cash dividends on the dividend payment date. Often times the additional shares are sold at a discount and are commission free.

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Dividend Yield - An indication of the dividend generated by a stock. The yield is calculated by dividing annual dividends per share by price per share.

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Dollar Delta of an Option - The notional value of an option multiplied by the delta of the option.

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Downstream Joint Ventures - Downstream Joint Ventures are partnership agreements executed by the operating partner of a joint venture funded by CalPERS (the Upstream Joint Venture).

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Due Diligence - The process of checking and verifying information as well as ensuring that sufficient analysis has been conducted before making an investment recommendation.

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Due Diligence - The process of investigating, evaluating, and analyzing a potential investment's characteristics, investment philosophy, and terms and conditions.

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Duration - A measure of price sensitivity to interest rate changes. Duration is the anticipated percentage move in price given a 100 basis point (1 percent) move in interest rates.

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Dutch-Auction - A system in which the price of an item is gradually lowered until it meets a responsive bid and is sold.

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Dynamic Completion Fund - A custom portfolio designed to control the capitalization or style misfit present in a plan sponsor's investment program.

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Earnings/Price Ratio - The relationship of earnings per share to current stock price. The stock's trailing 12 months of reported earnings is often used as the earnings per share figure.

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Earnouts - A dollar amount held back until the event is completed. That is, a seller of a property will earn a portion of their price upon achieving a pre-established lease-up level.

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Economic Analysis - Examines reference points for indications on what to look for and what events are considered significant in the economy to understand relationships among complex and often seemingly unrelated events. This analysis is used in making decisions concerning duration and sector weightings.

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Economically Targeted Investment - An investment which has collateral intent to assist in the improvement of both national and regional economies, and the economic well being of the State of California, its localities and residents. Economic stimulation includes job creation, development, and savings; business creation; increases or improvement in the stock of affordable housing; and improvement of the infrastructure.

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Emerging Equity Market - A market classified by FTSE as an emerging market based on an assessment of World Bank gross national income per capita, as well as factors related to the market and regulatory environment, custody and settlement, trading, development of a derivatives market and size of the country?s stock market. Emerging Equity Markets are distinguished from: (1)Developed Markets which are markets domiciled in high-income countries, as defined by the World Bank, that most investors consider to have a well-developed operating and regulatory structure for its capital markets. These markets are included in the FTSE Benchmark Classification as Developed Markets. (2)Frontier Markets which are markets domiciled in low-income countries, as defined by the World Bank, whose capital market structure and regulatory mechanisms are not developed enough to be included in Emerging Markets. These are markets that are investable but not classified by FTSE as Developed or Emerging Markets. (3)Uninvestable Markets which are those markets that are not classified by FTSE as Developed, Emerging, or Frontier Markets. These markets generally lack a convertible currency and do not allow for investment by non-residents.

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Emerging Fixed Income Market - Countries not classified as having developed capital markets by internationally recognized index providers.

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Emerging Hedge Fund-of-Funds - An investment fund which is comprised of hedge funds. A hedge fund is an actively managed portfolio that may utilize long and short positions, derivatives, and leverage. A fund-of-fund allows an investor to invest in more than one hedge fund via a single investment fund rather than having to invest in individual hedge funds separately. The term ?emerging? applies solely at the fund-of-funds level and not to the underlying hedge funds within the fund-of-funds. This definition applies within the context of the MDP Transition Policy and MDP II program.

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Emerging Management Team - A firm raising a first or second time Institutional Fund.

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Emerging Manager - An external money manager with less than $2 billion in assets under management at the time of initial investment.

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Emerging Manager Fund of Funds - An investment approach where a Manager contracts with multiple emerging investment managers to create one diversified portfolio. Diversification is created by including emerging managers utilizing different investment strategies.

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Emerging Market - Countries not classified as having developed capital markets by internationally recognized index providers.

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Emerging Product Markets - Markets for non-traditional products from forests such as sequestered carbon or feedstock for bio-fuels that are new and generally not well established (emerging).

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Emerging Real Estate Market - A market classified by FTSE as an emerging market based on an assessment of World Bank gross national income per capita, as well as factors related to the market and regulatory environment, custody and settlement, trading, development of a derivatives market and size of the country?s stock market. Emerging Real Estate Markets are distinguished from: (1) Developed Markets which are markets domiciled in high-income countries, as defined by the World Bank, that most investors consider to have a well-developed operating and regulatory structure for its capital markets. These markets are included in the FTSE Benchmark Classification as Developed Markets. (2) Frontier Markets which are markets domiciled in low-income countries, as defined by the World Bank, whose capital market structure and regulatory mechanisms are not developed enough to be included in Emerging Markets. These are markets that are investable but not classified by FTSE as Developed or Emerging Markets. (3) Uninvestable Markets which are those markets that are not classified by FTSE as Developed, Emerging, or Frontier Markets. These markets generally lack a convertible currency and do not allow for investment by non-residents.

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Enhanced Indexation - An equity-based strategy or synthetic strategy where managers are expected to add consistent alpha above the passive index by controlling tracking error at a level that is below traditional active management. For example, for U.S. large capitalization core equity, the expectation is a return of 1.00% per annum above the benchmark, net of fees, with annual tracking of 2.00%-2.50%.

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Enterprise Zome - A designated geographical area in which businesses enjoy favorable tax credits, financing, and/or other incentives.

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Equitize - Combining cash with derivative instruments to produce returns comparable to the equity market.

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Equity Based Strategy - Combination of active stock selection with risk mechanism designed to minimize tracking error relative to the benchmark. Seek to add value through minor variances relative to the market in sector/industry weightings, style (growth/value) tilts or stock weightings. Key inputs into the process come from either analysts' fundamental research or quantitative models.

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Equity Real Estate - Refers to real estate investments in which the investor (CalPERS) has an ownership interest. The term is generally used in contrast with conventional mortgage investments.

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Equity Swaps - An agreement between two parties dictating a swap with payments on one or both sides, linked to the performance of equities or an equity index.

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Eruobonds - A bond issued in a currency other than the currency of the country or market in which it is issued.

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Essential Municipal Services - Those municipal services including, but not limited to, water, power, sewer, garbage removal, and other infrastructure essential to the well being and quality of life of a municipality, and upon which the municipality pays a high priority in service delivery.

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Eurodollar Futures - A standardized agreement traded on the Chicago Mercantile Exchange, to buy or sell Eurodollars at a specified price at a date in the future.

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Eurodollars - Certificates of deposit in U.S. dollars in a bank that is typically located outside the U.S., usually a bank in Europe.

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Evaluation Date - The targeted date upon which analysis of the portfolio is being performed.

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Event Driven - Strategies that invest in companies with "special situations" designed to capture price movement generated by a significant pending corporate restructuring, liquidation, bankruptcy, or reorganization.

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Event Risk - The risk that the credit quality of a bond will drop suddenly because of some event like a takeover.

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Exchange Traded Fund - An exchange traded fund (ETF) is an investment vehicle that is a hybrid between a stock and a mutual fund. It is built like a mutual fund, being a pool of investment assets such as stocks, bonds, or commodities. Like a stock, however, they are listed on exchanges and traded throughout the day. Most ETF's track an index, though more complex ETF's such as inverse, leveraged, and active ETF's do exist.

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Exchange Traded Fund - An exchange-traded fund (ETF) is an investment company that is legally classified as an open-end company or a Unit Investment Trusts. An ETF is not classified as a mutual fund by the Securities and Exchange Commission because of limited redeemability. A typical ETF is similar to an index fund, and will invest in either all of the securities of a selected index or a representative sample of the securities included in the index.

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Exchange Traded Fund - An exchange-traded fund (ETF) is an investment company that is legally classified as an open-end company or a Unit Investment Trusts. An ETF is not classified as a mutual fund by the Securities and Exchange Commission because of limited redeemability. A typical ETF is similar to an index fund, and will invest in either all of the securities of a selected index or a representative sample of the securities included in the index. An ETF may be considered to be a derivative instrument as a component of their unit valuation is derived from the underlying value of the investments held by the fund.

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Exchange Traded Fund - An exchange-traded fund (ETF) is an investment company that is legally classified as an open-end company or a Unit Investment Trusts. An ETF is not classified as a mutual fund by the Securities and Exchange Commission because of limited redeemability. A typical ETF is similar to an index fund, and will invest in either all of the securities of a selected index or a representative sample of the securities included in the index.

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Exchange Traded Funds (ETF) - An investment company that is legally classified as an open-end company or a Unit Investment Trust. An ETF is not classified as a mutual fund by the Securities and Exchange Commission because of limited redeemability. A typical ETF is similar to an index fund, and will invest either all of the securities of a selected index or a representative sample of the securities included in the index.

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Exempt Transaction - Any transaction that is initiated for purposes of depositing employer payroll contributions, processing a distribution or any administrator-initiated transaction (e.g., processing a Qualified Domestic Relations Order (QDRO), mapping assets from terminated funds, etc.). An Exempt Transaction will not be counted for purposes of determining whether a Participant has engaged in any short-term or disruptive trading under SIP?s Excessive Short-Term Trading Policy.

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Expansion Capital (Growth Equity) - Investment in an established company for the purpose of growing its business.

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Exposure - The amount of funds invested in a particular type of security, sector, industry, or strategy.

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External Currency Debt - Debt issued by a national government, subnational entity or corporation denominated in a foreign currency and issued in foreign markets, under foreign laws.

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External Investment Resource - Any Consultant, External Manager or other entity which provides any investment management or investment advisory services related to the administration of CalPERS investment programs. An External Investment Resource does not include a general consultant who provides strategic planning, project management or general administrative or operational services unrelated to specific investment transactions or decisions.

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External Manager - An outside money management firm retained under contract by CalPERS.

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External Manager - An asset management firm retained by CalPERS to manage a portfolio of securities for a fee. The external manager usually has full discretion to manage CalPERS? assets, consistent with investment management guidelines provided by CalPERS and fiduciary responsibility.

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External Manager - An asset management firm that is seeking to be, or has been, retained by CalPERS or by a CalPERS Vehicle to manage a portfolio of assets (including securities) for a fee. The external manager usually has full discretion to manage CalPERS assets, consistent with investment management guidelines provided by CalPERS and fiduciary responsibility.

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External Partner - An external manager who has executed a letter agreement with CalPERS under our Corporate Governance Co-Investment Strategy. Each letter agreement will be specific to each investment.

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External Resource(s) - Consultants and advisors qualified through a public contracting process to perform consulting and advisory work for the PE Program. May include but is not limited to management consultants, accountants, attorneys, industry specialists, traditional pension fund consultants, investment bankers, or industry experts.

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External Resources - Includes management consultants, accountants, attorneys, industry specialists, traditional pension fund consultants, investment bankers, or industry experts.

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Externally Managed - An outside money management firm retained under contract by CalPERS.

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Factor Return - See Common Factor Return.

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Fair Market Value - An accounting term defined as the highest cash price a property would bring if exposed for sale in the open market by a willing seller to a willing buyer with both parties to the transaction being fully informed of all the uses and purposes to which the property is reasonably adaptive and available.

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Fair Market Value - A valuation term defined as the highest cash price a property would bring if exposed for sale in the open market by a willing seller to a willing buyer with both parties to the transaction being fully informed of all the uses and purposes to which the property is reasonably adaptive and available.

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Fair Value - An accounting term defined as the amount at which that asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, other than in a forced or liquidated sale.

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Fed Funds - Immediately available funds borrowed by banks from certain other financial institutions and government agencies that are exempt from reserve requirements.

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Federal Open Market Committee - The Federal Reserve committee that has authority over monetary policy and consists of the seven members of the Board of Governors, as well as five of the 12 regional bank presidents. The president of the New York regional bank is always a member of the committee.

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Fiduciary Standard of Care - The consultant or external resource shall discharge its duties with respect to this system solely in the interest of the participants and beneficiaries by acting with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an enterprise of a like character and with like aims.

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Financial Accounting Standards Board (FASB) - Independent agency which establishes Generally Accepted Accounting Principles (GAAP).

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Financial Firewall - The legal protection from financial liability extending beyond the value of the investment in a Limited Liability Company or Limited Partnership.

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Financial Futures - A contract to trade a financial investment, like a Treasury bond, at a specific price and future date. As interest rates rise or fall, the value of such contract falls or rises respectively.

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Financial Partners - A financial institution (public or private) that collects funds (from the public or other institutions) and invests them in financial assets.

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Financial Times Stock Exchange (FTSE) - The index publisher that produces the Custom FTSE All World ex-US Index for CalPERS. FTSE is partially owned by the London Stock Exchange and Financial Times.

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Fitch Ratings (Fitch) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 10-symbol system. The ranges extend from the highest investment quality, which is AAA, to the lowest credit rating, which is D. Securities rated BBB- or greater are considered investment-grade. Securities rated BB+ or below are considered to be speculative.

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Fitch Ratings (Fitch) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 10-symbol system. The ranges extend from the highest investment quality, which is AAA, to the lowest credit rating, which is D. Securities rated BBB- or greater are considered investment-grade. Securities rated BB+ or below are considered to be non-investment grade.

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Fitch Ratings (Fitch) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 10-symbol system. The ranges extend from the highest investment quality, which is AAA, to the lowest credit rating, which is D. Securities rated BBB- or greater are considered investment-grade. Securities rated BB+ or below are considered to be speculative.

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Fixed Income Arbitrage - This investment style is comprised of hedge funds that seek to arbitrage from price anomalies between related interest rate securities. The hedge fund shall invest opportunistically in interest rate swaps, U.S. and non-U.S. government bonds, forward agreements, etc.

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Floating Rate Notes - Securities that have a coupon or interest rate adjusted whenever a predefined change in interest rate occurs. Typically, floating rate notes coupons are based on a short-term rate index.

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Floating Rate Security - A bond whose coupon rate is reset periodically (i.e., daily, weekly, monthly, or quarterly). The coupon rate is tied to one of a variety of indices.

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Floors - Provide insurance against rate of interest on a floating rate loan dropping below a certain level.

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For Sale Residential and Land Development - Includes land primarily zoned as for sale residential or land held with the expectation of being rezoned to residential use. Includes path of growth investments, land development transactions, and construction of homes. Projects can be attached housing (typically condominium projects) or detached single family housing.

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Forecasted Tracking Error - The expected or ex ante annualized standard deviation of the difference between the return, defined as the average of the model estimates of at least two providers.

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Forecasted Tracking Error - The expected or ex ante annualized standard deviation of the difference between the total return of the portfolio and the total return of the benchmark.

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Foreign Custodian - An entity that is incorporated or organized under the laws of a country other than the United States.

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Foreign Debt Policy - CalPERS' guidelines for permissible country debt investments, as most recently amended.

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Foreign Financial Regulatory Authority - A governmental body or foreign equivalent of a self-regulatory organization empowered by a foreign government to administer or enforce its laws relating to the regulation of fiduciaries, trusts, commercial lending, insurance, trading in contracts of sale of a commodity for future delivery, or other instruments traded on or subject to the rules of a contract market, board of trade or foreign equivalent, or other financial activities.

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Forest Certification - The independent evaluation of forest management practices against a national or international standard for best practices.

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Forest License - Legal authority normally granted by government or its agent to manage forestlands and harvest and utilize forest resources for some specified period of time.

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Forward Contract (Forwards) - An instrument that allows the purchase or sale of a specific quantity of a commodity, government security, foreign currency, or other financial instrument at the current price, with delivery and settlement at a specified future date.

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Franchiser - The owner of a trademark, trade name, or copyright authorizes others, under certain conditions, to use it in purveying goods or services.

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Frontier Real Estate Market - Frontier Markets which are markets domiciled in low-income countries, as defined by the World Bank, whose capital market structure and regulatory mechanisms are not developed enough to be included in Emerging Markets. These are markets that are investable but not classified by FTSE as Developed or Emerging Markets.

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FSA - The Financial Services Authority in the United Kingdom. This is the main independent financial regulatory agency in the UK, authorized by the government. The FSA regulates most financial services markets, exchanges and firms in the UK.

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Fund - A co-mingled investment vehicle through which investments are made. Funds are usually structured as Limited Partnerships.

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Fund - A portfolio specifically managed for CalPERS by an external investment manager or managed internally.

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Fund Benchmark - The average return of the asset class benchmark indices, weighted by asset class benchmark allocations. The fund benchmark return is the return attributable to the target asset class allocations. Staff employs active strategies in an effort to achieve a fund portfolio return that exceeds the fund benchmark return.

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Fund of Absolute Return Funds - An investment approach where a Fund invests in multiple absolute return vehicles that result in one diversified portfolio. Diversification is created by including absolute return funds utilizing different investment strategies.

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Fund of Funds - An investment approach where a Manager contracts with multiple investment managers to create one diversified portfolio. Diversification is created by including investment managers utilizing different investment strategies.

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Fundamental Risk Model - A model used to predict the risks of individual stocks using fundamental and technical information. A covariance matrix is constructed from the factor's standard deviations and the correlations between one another. This covariance matrix can be used to predict the risk characteristics of a portfolio.

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Futures - Exchange-traded contracts to buy or sell a standard quantity of a given instrument, at an agreed price, and date. A future differs from an option in that both parties are obliged to abide by the transaction. Futures are traded on a range of underlying instruments including commodities, bonds, currencies, and stock indices.

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G10 Countries - Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, United Kingdom, United States. G10 is the group of countries that have agreed to participate in the General Arrangements to Borrow

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General Consultant - An individual or organization that provides specialized professional assistance to the CalPERS Board of Administration in determining the pension fund's asset allocation model or optimal combination of investments in order to maximize risk-adjusted investment returns in a manner consistent with CalPERS? long-term pension liabilities.

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General Obligation Bond - A bond secured by a pledge of the issuer's taxing powers (limited or unlimited). More commonly the general obligation bonds of local governments are paid from ad valorem property taxes and other general revenues. Considered the most secure of all municipal debt. Limited in California by Proposition 13 to debt authorized by a vote of two-thirds of voters in the case of local governments or a simple majority for State issuance.

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General Partner - The manager of a limited partnership. The general partner has full responsibility for investing the capital. The general partner also bears personal liability for any lawsuits that arise from the investment's activities, but is often indemnified by the fund.

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General Partner - The managing member of a limited liability company (LLC), or the management company or managing organization of a limited partnership. As used in this delegation resolution, the term General Partner can also generically refer to the principals that manage a family of funds.

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General Partner - The General Partner of a limited partnership.

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General Pension Consultant - An individual or organization that provides specialized professional assistance to the Investment Committee in determining the pension fund's asset allocation model or optimal combination of investments in order to maximize risk-adjusted investment returns in a manner consistent with the State's long-term pension liabilities.

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General Pension Consultant - An individual or organization that provides specialized professional assistance to the Investment Committee in determining the pension fund?s asset allocation model or optimal combination of investments in order to maximize risk-adjusted investment returns in a manner consistent with the State?s long-term pension liabilities.

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General Pension Consultant - An individual or organization that provides specialized professional assistance to the Investment Committee in determining the pension fund's asset allocation model or optimal combination of investments in order to maximize risk-adjusted investment returns in a manner consistent with the State's long-term pension liabilities.

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General Pension Consultant - An individual or organization that provides specialized professional assistance to the Investment Committee in determining the pension fund's asset allocation model or optimal combination of investments in order to maximize risk-adjusted investment returns in a manner consistent with the State's long-term pension liabilities.

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General Pension Consultant - An individual or organization that provides specialized professional assistance to the Investment Committee in determining the pension fund's asset allocation model or optimal combination of investments in order to maximize risk-adjusted investment returns in a manner consistent with the State's long-term pension liabilities.

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Generally Accepted Accounting Principles (GAAP) - The common set of accounting principles, standards, and procedures. GAAP is a combination of authoritative standards (set by policy boards) and the accepted ways of doing accounting.

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Generally Accepted Accounting Principles (GAAP) - An accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board (FASB). See also International Financial Reporting Standards (IFRS).

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Glidepath - The pre-determined asset mix and asset allocation for a series of Target Date Retirement Funds. The glidepath automatically adjusts the asset allocation each year to achieve the appropriate risk and return for each stage of a participant's life.

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Global Debt - Debt issued by a national government, subnational entity or corporation denominated in the U.S. dollar or other major currency and issued in major markets, typically New York or London, under the laws of those markets.

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Global Equity Portfolio - Referring to the aggregate of all Global Equity Funds.

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Global Investment Performance Standards (GIPS) - Standardized, industry-wide ethical principles created by the CFA Institute that provide investment firms with guidance on how to calculate and report their investment results.

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Global Macro - The strategy of investing on a large scale around the world using economic theory to justify the decision making process. The strategy is typically based on forecasts and analysis about interest rates trends, the general flow of funds, political changes, government policies, inter-government relations, and other broad systemic factors.

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Government Sponsored Securities - Issuer that benefits from sponsorship with or underlying guarantee from a single or multiple sovereign or regional government entity.

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Ground Lease - A lease that grants the right to use and occupy land for a stated term. Ground leases exist in situations where the investor (CalPERS) owns the real estate improvements but does not own the land underlying the improvements.

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Hedge (Hedging) - A strategy used to offset investment risk. A perfect hedge is one eliminating the possibility of future gain or loss.

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Hedge (Hedging) - A strategy used to offset investment risk. A perfect hedge is one eliminating the possibility of future gain or loss.

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Hedge Fund Administrator - The entity responsible for maintaining the accounting records for the Risk Managed Absolute Return Strategies Program.

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High Quality LIBOR - A limited-duration, highly liquid, LIBOR-based fund managed by CalPERS staff.

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Historical Beta - The figure calculated by regressing 60 months of a stock's total return against the monthly total returns of a broadly diversified index, after subtracting the T-Bill's rate of return from both.

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Historical Factors - A review of past relationships and the environment associated with them to assess the relative investment potential of the current market conditions and relationships.

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Holdbacks - A specified dollar amount held back from being distributed to the borrower until a certain event is completed.

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Hotel - Includes budget, mid-scale, upscale, luxury, and extended stay properties. May include attached convention centers, retail, parking structures and entertainment facilities. Development projects (vertical construction) which are primarily hotel are included in this category.

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Idiosyncratic Risk - Risk particular to an individual or group of issuers.

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Illiquidity - Derives from exposure to assets which may not be readily convertable to cash due to contractual provisions. A capital lock-up beyond one year is deemed to represent "illiquidity."

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Income Return - The component of return derived from property or portfolio operations during a period of analysis, expressed as a percentage of property market value.

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Incubation - Funding a new developmental investment process to gain experience and insight into actual, achievable results.

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Independent Fiduciary - A consulting firm which has undergone a review process and has been accepted into the spring-fed pool. Independent Fiduciaries are hired by staff to complete third party reviews of investment decisions approved by the Investment Review Committee.

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Independent Living - Independent living refers to properties that include multi-unit residential facilities with supportive hospitality services such as meals, housekeeping, transportation, and social programs.

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Independently Sourced Investment - A type of direct investment which is sourced through contacts other than the general partners with which CalPERS is invested.

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Independently Sourced Investments - Direct investments that come to CalPERS through contacts other than the partnerships and LLCs with which CalPERS typically invests.

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Index Swap - An agreement between two parties to exchange cashflows where the floating side would depend on the return of an index.

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Indirect Investment - An investment in which CalPERS has an ownership interest in an entity (i.e., a corporation) which primarily invests in real properties.

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Industrial - Multi-tenant or single tenant buildings including manufacturing, warehouse (logistics), light industrial/assembly, truck terminals, trailer storage lots and bulk distribution. Also includes Research and Development, Flex and Office Showroom space. Typically a portion of the building is finished out into office space. Development projects (vertical construction) which are primarily industrial are included in this category.

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Initial Margin - The amount of collateral that must be delivered relative to the market value of the security loaned.

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Institutional Fund - A Fund which is being raised by a proven team with a demonstrable track record to which at least three institutional investors have made a commitment.

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Interest Rate Caps - Designed to provide insurance against the rate of interest on a floating rate loan rising above a certain level (known as the cap rate).

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Interest Rate Collar - A security which combines the purchase of an interest rate cap and the sale of a interest rate floor to specify a range in which an interest rate will fluctuate.

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Interest Rate Risk - Interest Risk Rate is the price volatility produced by changes in the overall level of interest rates as measured by an option-adjusted duration.

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Interest Rate Risk - Interest Rate Risk is the price volatility produced by changes in the overall level of interest rates as measured by an option-adjusted duration.

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Interest Rate Swaps - Private agreements between two parties to exchange cash flows in the future, according to a prearranged formula.

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Interest Sensitivity - The figure calculated by regressing 60 months of a stock's total return against the monthly total returns of a long bond index, after subtracting the T-Bill's rate of return from both.

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Interim Portfolio Limits - Temporary limits for certain policy parameters established for a specified period during transition to a new strategic plan and policy.

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International - Any geographic location other than the eight domestic U.S. NCREIF regions and the territory of Puerto Rico.

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International Accounting Standards Board (IASB) - Standard setting body responsible for the development of International Financial Reporting Standards (IFRS).

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International Financial Reporting Standards (IFRS) - A ?principles based? set of standards and interpretations that establish broad rules for reporting financial information adopted by the International Accounting Standards Board (IASB). Over 100 countries require, allow or are in the process of converging their national accounting standards to IFRS.

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International Valuation Standards (IVS) - A widely accepted global set of uniform standards created to ensure an independent and transparent valuation process.

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Inverse Floaters - A derivative instrument with a coupon rate, which cannot go below zero, that moves inversely with an index rate like London Interbank Offer Rate or 11th District Cost of Funds Index, usually with a leverage factor. The higher the leverage factor, the greater the price sensitivity.

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Inverse Floaters - A derivative instrument with a coupon rate, which cannot go below zero, that moves inversely with an index rate like London Interbank Offer Rate or 11th District Cost of Funds Index, usually with a leverage factor. The higher the leverage factor, the greater the price sensitivity.

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Investment Amount - Refers to any capital amounts committed to a relationship for investment. May include, but is not limited to, annual allocations, multi-year allocations or commitments to commingled funds, separate accounts or targeted transactions.

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Investment Grade - A minimum credit rating of Baa3 by Moody's Investor Service or BBB- for Standard & Poor's Corporation, and BBB- by Fitch. Investment grade ratings apply to issuers whose financial risk is relatively low and the probability of future payment relatively high.

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Investment Grade - A minimum credit rating of Baa3 by Moody's Investor Service or BBB- for Standard & Poor's Corporation, and BBB- by Fitch. Investment grade ratings apply to issuers whose financial risk is relatively low and the probability of future payment relatively high.

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Investment Grade - A minimum credit rating of Baa3 by Moody's Investor Service or BBB- for Standard & Poor's Corporation, and BBB- by Fitch. Investment grade ratings apply to issuers whose financial risk is relatively low and the probability of future payment relatively high.

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Investment Manager - A professional or firm responsible for managing a securities portfolio for an investor. In return for a fee, the investment manager has the fiduciary responsibility to choose and manage investments prudently for their client.

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Investment Manager - A professional or firm responsible for managing a securities portfolio for an investor. In return for a fee, the investment manager has the fiduciary responsibility to choose and manage investments prudently for their client.

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Investment Pool Consultants - An individual or organization who are contractually retained or have been appointed to a pool by CalPERS to provide investment advice but who do not exercise investment discretion.

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Investment Transaction Amounts - Refers to the sum of the three individual definitions for Investment, Disposition, and Debt Financing Amounts. The combined term is utilized in the Policy and Real Estate Delegation Resolution to describe transactions which staff will or will not have discretion to execute.

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Investment, Disposition, and Debt Financing Amounts - Refers to the sum of the three individual definitions for Investment, Disposition, and Debt Financing Amounts. The combined term is utilized in the Policy and Real Estate Delegation Resolution to describe transactions which staff will or will not have discretion to execute.

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Irrevocable - A binding and irreversible commitment.

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ISDA - ISDA is an acronym for the International Swaps and Derivatives Association. ISDA represents participants in the privately negotiated derivatives industry, and is the largest global financial trade association. ISDA has pioneered efforts to identify and reduce the sources of risk in the derivatives and risk management business through the development of the ISDA Master Agreement

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Issuer - A state or local unit of government that borrows money through the sale of bonds and/or notes.

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Joint Venture - A partnership, limited liability company or corporation formed by two or more entities for the purpose of investing or operating a business as co-owners.

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Key Personnel - Persons identified by the Consultant who will exercise a significant role in providing to CalPERS the services required under an assignment or contract.

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Key Policy Parameters - Analytical measures of the Real Estate Portfolio which have limits and ranges, or both, specified in the Real Estate Policy. The Key Policy Parameters are: 1. Risk Classifications; 2. Geographic Guidelines; 3. Property Type; 4. Public Securities Limitation; 5. Loan to Value Limits; 6. Debt Service Coverage Ratio; and 7. Recourse Debt Limitation.

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Land - Generally entitled vacant land held for potential development or resale.

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Land Development - Land development refers to properties that are acquired with the intention to develop or construct infrastructure, including all forms of acquisition and infrastructure development for single family housing, such as condominiums, town homes, zero lot line developments, planned unit developments with and without common area, and standard subdivisions.

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Land Entitlement Risk - Land entitlement risk reflects the risks assumed by an investor when purchasing a parcel of land prior to the tentative map and other discretionary political approvals being granted by the appropriate regulatory bodies.

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Leasehold - The right to use and occupy real estate for a stated term and under certain conditions. Leasehold interest is conveyed by a lease.

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Legacy Commitments - With regard to the Securities Lending Investment Policy, legacy commitments refers to commitments held in the cash collateral reinvestment portfolio prior to adoption of the Securities Lending Investment Policy dated February 16, 2010.

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Lending Agents - An agent hired by the sponsor for locating demand, negotiating premiums, and investing the cash collateral from securities lending on behalf of the sponsor.

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Letter Agreement - An agreement between CalPERS and its external partner specific to each investment made under the internal Relational Program. The agreement will include items specific to the investment, such as purchasing and selling shares, reporting requirements, expenses, confidentiality, and termination.

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Letter of Credit - A form of supplement or, in some cases, direct security for a municipal bond, under which a commercial bank or private corporation guarantees payment on the bond under certain specified conditions. The legal obligation to fund these instruments is "unconditional" (irreversible instrument).

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Leverage - A condition where a portfolio's market obligation may exceed the market-value-adjusted capital commitment by the amount of borrowed capital (debt).

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Leverage - The use of debt, derivative instruments, reinvestment of cash collateral, or other means to acquire more assets than the capital employed.

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Leverage - A condition where a portfolio's market obligation may exceed the market-value-adjusted capital commitment by the amount of borrowed capital (debt).

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Leverage - The use of debt, derivative instruments, reinvestment of cash collateral, or other means to acquire more assets than the capital employed.

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Leverage - The use of borrowed money to make an investment, including all forms of debt and financing structures.

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Leverage - A condition where a portfolio's market obligation may exceed the market-value-adjusted capital commitment by the amount of borrowed capital (debt).

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Leverage Ratio - CalPERS' share of consolidated debt divided by CalPERS' share of value or cost of gross assets. The Leveraged Ratio can be measured in terms of: Loan to Value (LTV) - Debt divided by fair market value of assets. Loan to Cost (LTC) - Debt divided by cost of development. Development costs include hard and soft costs.

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Leveraged Bank Loans - Loans made by banks that are typically partially secured by assets and are made to non-investment grade companies with a debt/EBITDA ratio greater than 3.5 and have a spread to LIBOR of greater than 250 basis points.

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Leveraged Equity Investment - Refers to investments in real estate in which the investor (CalPERS) has an equity interest and the purchase or ownership of the investment is or partially financed with debt.

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LIBOR - An acronym for London Interbank Offer Rate. These rates are based on rates quoted by 16 (for U.S. dollars) British Bankers' Association designated banks as being in their view, the offered rate at which deposits are being quoted to prime banks in the London Interbank Market at 11:00 a.m. London time. Of the 16 contributors, the four highest and four lowest rates are eliminated. An average of the remaining eight is taken.

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Limited Liability Companies - A company, authorized by statute in some states, that is characterized by limits on members' liability, management by members or managers, and limitations on ownership transfer.

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Limited Liability Company - An alternative structure to a Limited Partnership. It is often described as a hybrid between a corporation and a partnership because it offers limited liability like a corporation and single taxation on income like a partnership.

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Limited Liability Company - An alternative structure to a Limited Partnership. It is often described as a hybrid between a corporation and a partnership because it offers limited liability like a corporation and single taxation on income like a partnership.

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Limited Partner - The Limited Partner in a limited partnership.

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Limited Partner - An investor in a limited partnership. Limited partners provide the capital, but have no direct involvement in the day-to-day management of the fund. Limited partners have limited liability, but also have limited control over the management of the fund.

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Limited Partner - An investor in a limited partnership. Limited partners provide the capital but have no direct involvement in the management of the fund. Limited partners have limited liability but also have limited control over the management of the fund.

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Limited Partner - An investor in a limited partnership. Limited partners provide the capital, but have no direct involvement in the day-to-day management of the fund. Limited partners have limited liability, but also have limited control over the management of the fund.

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Limited Partnership - The most common format used in structuring private equity investments. Limited partners provide the capital but have no direct involvement in the management of the fund. Limited partners have limited liability but also have limited control over the management of the fund.

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Limited Partnership - An investment vehicle with the General Partner and Limited Partner(s). The Limited Partner's liability is generally limited to its capital invested.

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Lines of Credit - These are also referred to as Standby Bond or Note Purchase Agreements and Liquidity Lines. These are designed to provide liquidity (as opposed to credit enhancement) in the event of financial market disruption. The legal obligation to fund under these instruments is "conditional" (revocable instruments).

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Liquidity - The ability to quickly convert a particular investment into cash at a low transaction cost.

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Liquidity - The ability to quickly convert a particular investment into cash at a low transaction cost.

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Liquidity - The ability to quickly convert a particular investment into cash at a low transaction cost.

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Liquidity Lines - See Lines of Credit.

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Liquidity Risk - The inability to trade a position at a price approximating fair value.

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Liquidity Risk - Liquidity Risk is the ease with which an issue or specified amount can be sold at or near prevailing market prices.

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Liquidity Risk - The inability to trade a position at a price approximating fair value.

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Local Currency Debt - Debt issued by a national government, subnational entity or corporation denominated in local currency and issued in the local market, under local laws.

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Long/Short Credit - This investment style is comprised of hedge funds that seek to arbitrage between the different debt instruments within a company's capital structure. The hedge fund seeks to realize returns from shifts in the credit spreads between the debt instruments.

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Long/Short Equity - This investment style is comprised of hedge funds that take both long and short equity positions to extract the maximum value from their investment information/analysis.

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Maintenance Margin - After a security is lent at an initial margin, the security loaned may increase in value, such that the amount of collateralization shall fall below the initial margin. The maintenance margin is the minimum level of collateralization that shall be accepted before additional collateral is delivered.

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Management Fee - The fee paid to the General Partner to manage the fund.

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Management Firms - External Investment Managers

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Manager - A professional responsible for managing the securities portfolio of an individual or institutional investor. In return for a fee, the money manager has the fiduciary responsibility to choose and manage investments prudently for their clients. In CalPERS case, an internal manager is a portfolio manager on the staff, while an external manager is an outside money management firm.

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Mark-to-Market - A method of determining the value of securities by applying current trading prices of similar or identical securities to the securities being valued.

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Mark-to-Market Method - The method of assigning a value to a security based on the current fair market price for the security or similar securities.

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Market Capitalization - A stock's current market price multiplied by the current common shares outstanding.

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Market Neutral - An investment strategy employed by hedge funds that attempts to remove or neutralize systematic market and industry risk, while focusing on stock selection risk. This strategy attempts to profit from the current direction of the market by taking both long and short positions at the same time.

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Market Position - The strength of sales of the market concept as it relates to a particular market and its demographics.

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Market Value - The most probable price which an asset should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised and acting in what they consider their own best interest; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. the price presents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

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Market/Book Ratio - A stock's equity market value, divided by book value at the most recently available fiscal year end (assets minus liabilities).

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MDP Firm - An investment management firm managing CalPERS' assets as part of CalPERS' MDP program.

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MDP Partner - A managing member of a CalPERS MDP limited liability company.

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Mean - The value that is to be expected on average. Among many repetitions or trials of a random process, the mean shall be the average value.

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Medium Term Notes - A debt security, like any other senior or subordinated debt, with a maturity of two to 10 years offered through one or more dealers. Medium-term notes are fixed coupons and maturities that can be targeted to meet investor requirements. They are issued in the capital markets either publicly under a Securities Exchange Commission 415 shelf registration or privately without such registration.

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Member of the Appraisal Institute (MAI) - The MAI membership designation is held by appraisers who are experienced in the valuation and evaluation of commercial, industrial, residential and other types of properties, and who advise clients on real estate investment decisions.

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Merger - The combination of two or more companies. Strictly speaking, only combinations in which one of the companies survives as a legal entity are called mergers.

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Merger Arbitrage - An investment strategy employed by hedge funds in which the stocks of the merging companies are simultaneously bought and sold in an attempt to create a riskless profit.

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Mixed Use Properties - Properties that are any mix of the five product types: office, retail, industrial, multifamily and hotels. Properties that include only a small percentage of a second product type are generally not considered mixed use (for example, an office building with a retail shop). Staff will develop procedures to allocate Mixed Use Properties by property type.

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Monetary Policy - Refers to the management of the money supply to affect the macro economy through movements in the level of short-term interest rates, such as the Fed Funds and the Discount Rate, or supplying more credit to the banking system through open market operations.

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Money Market Fund - Fund that invests in commercial paper, banker's acceptances, repurchase agreements, government securities, certificates of deposit, and other highly liquid and safe securities, and pays money market rates of interest.

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Money Market Security - A short-term, highly-liquid, and relatively low-risk debt instrument (i.e., commercial paper, certificates of deposit, bankers acceptances, U.S. Government Agency discount notes, bank notes, and Treasury Bills and Notes).

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Moody's Investors Service (Moody's) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 9-symbol system. The ranges extend from the highest investment quality, which is Aaa, to the lowest credit rating, which is C. Securities rated Baa3 or greater are considered investment grade. Securities rated Ba1 or below are considered to be speculative.

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Moody's Investors Service (Moody's) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 9-symbol system. The ranges extend from the highest investment quality, which is Aaa, to the lowest credit rating, which is C. Securities rated Baa3 or greater are considered investment grade. Securities rated Ba1 or below are considered to be non-investment grade.

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Moody's Investors Service (Moody's) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 9-symbol system. The ranges extend from the highest investment quality, which is Aaa, to the lowest credit rating, which is C. Securities rated Baa3 or greater are considered investment grade. Securities rated Ba1 or below are considered to be speculative.

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Mortgage-Backed Security (MBS) - A general term used to describe securities backed by mortgages. MBSs are broken down into four types of securities: mortgage pass-through, mortgage-backed bond, collaterallized mortgage obligation (CMO), and stripped mortgage-backed bonds. Mortgage pass-throughs are pooled loans, typically issued by the Government National Mortgage Association, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation. Mortgage-backed bonds have mortgage loans as collateral, but the term and interest payments are fixed. CMOs are defined above. Stripped mortgage-backed securities have the principal and interest distribution altered from a pro rata distribution to an unequal distribution.

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Multi-Process - Strategies that invest in multiple hedge fund styles within a single hedge fund structure. The hedge fund allocates assets based on the opportunities among the various hedge fund styles to create the best return/risk profile for the product. The most common hedge fund styles utilized are merger arbitrage, equity long/short, convertible arbitrage, and volatility arbitrage.

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Multifamily - Includes high-rise, low rise and garden style rental residential properties. May be specialized rental properties such as student housing, military housing, affordable housing or age restricted housing. Development projects (vertical construction) which are primarily multifamily are included in this category.

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Multiple Arbitrage - An investment strategy employed by hedge funds that employ more than one arbitrage strategy within a single hedge fund. The hedge fund allocates assets based on the opportunities among the various arbitrage strategies to create the best return/risk profile for the product. The most common arbitrage strategies are merger arbitrage, fixed income arbitrage, convertible arbitrage, and volatility arbitrage.

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Municipal Bond - Bonds issued by any of the 50 states, the territories and their subdivisions, counties, cities, towns, villages and school districts, agencies (such as authorities and special districts created by the states), and certain federally-sponsored agencies (such as local housing authorities). There are two broad groups of municipals: 1) Public Purpose bonds, which remain tax-exempt and can be issued without limitation; and (2) Private Purpose Bonds, which are taxable unless specifically exempted.

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National Council of Real Estate Investment Fiduciaries Index (NCREIF) - A property level performance benchmark for institutionally owned real estate. The benchmark is composed of an income return, an appreciation return and a total return and is calculated on a quarterly basis.

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Nationally Recognized Credit Rating Agencies - See Moody's, Standard and Poor's, and Fitch.

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NCREIF Farmland Index - National Council of Real Estate Investment Fiduciaries Farmland Index (NCREIF); may be used as a benchmark for performance objectives.

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Neighborhood Center - Retail property that serves customers residing within the immediate neighborhood, typically within a 3-mile radius. Neighborhood shopping centers provide convenience for consumers by supplying groceries, drugs, and other services used on a weekly or more frequent basis. The size range is typically 30,000-150,000 square feet of shopping area. The projects typically feature at least one anchor.

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Net Asset Value - NAV - The Net Asset Value or NAV is a term used to describe the value of an entity's assets less the value of its liabilities.

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Net Asset Value - NAV - The Net Asset Value or NAV is a term used to describe the value of an entity's assets less the value of its liabilities.

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Net Exposure - The sum of the market value of all long (positive) and short (negative) positions in non-cash-like securities plus the notional value of all long (positive) and short (negative) positions in futures, forward, and swap contracts plus the dollar delta of all options contracts. Net exposure includes lent securities.

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Non Profit 501(c)(3) Institutions - These are institutions exempt from federal, and in some cases, state income tax.

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Non-Cash-Like Security - A security that is not a cash-like security.

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Non-Investment Grade - Securities that are rated at or below Ba1 by Moody's, BB+ by Standard & Poor's, and BB+ by Fitch Ratings. These securities are also known as high yield, speculative, or "junk" bonds.

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Non-recourse Debt - Financial obligation for which an investor has no current or contingent liability. Non-recourse debt includes the liabilities of a publicly traded company of which an investor owns shares and financial obligations of a partnership or a non-publicly traded company of which an investor is a limited liability investor. Non-recourse debt includes debt that is recourse only to a certain investment, such as a separate account or a commingled fund, and is non-recourse to CalPERS. For an investment with non-recourse debt, the maximum potential loss is limited to the amount of the investment.

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Non-recourse Debt - Debt that may be recourse to a Separate Account or a Commingled Fund but for which CalPERS has no obligation.

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Nonsystematic Risk - That part of a total return that cannot be explained by a single- or multi-factor model of returns. Such components of return can be diversified away in a sufficiently large and well-diversified portfolio.

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Note Purchase Agreement - A formal agreement between the issuer of the bonds and the purchaser of bonds that describes the terms and conditions applicable to the bond.

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Notes - Intermediate-term, interest-bearing instruments issued by corporations, municipalities, or the federal government with maturities commonly ranging from five to 12 years.

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Notional Leverage - Equal to the net exposure of a portfolio in excess of the portfolio market value.

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Notional Leverage - Cash collateral that is invested in non-cash-like securities.

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Notional Leverage - Created when a derivative position either lacks full collateralization, or when non-cash collateral underlies a derivative exposure.

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Objective Function - The objective function consists of the targets, penalties, rewards, and constraints selected in the optimization setup. It reflects the investment policy or goal.

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OECD - Organization for Economic Cooperation and Development. An organization that acts as a meeting ground for 30 countries which believe strongly in the free market system, The OECD provides a forum for discussing issues and reaching agreements, some of which are legally binding.

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Office - Includes central business district high-rise and suburban low and mid-rise buildings with finished office space. May be single tenant or multi-tenant. Includes specialized buildings such as medical office buildings and government buildings. May include attached parking structures and miscellaneous uses. Development projects (vertical construction) which are primarily office are included in this category.

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Operator - Any individual, partnership, limited liability company, or other entity employed to manage the Senior Housing Program's projects' day-to-day business and affairs on behalf of the partnership.

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Operator - Any individual, partnership, limited liability company or corporation which is responsible for day to day management of a commingled fund or joint venture. Also known as the General Partner, Managing Member, Manager, etc.

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Operator/Franchisee - The party authorized by the owner of the trademark, trade name, or copyright to purvey goods or services.

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Opportunistic - An established investment program temporarily investing outside its benchmark or asset category based on current favorable market conditions.

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Opportunistic - An established investment program temporarily investing outside its benchmark or asset category based on current favorable market conditions.

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Opportunistic - Nontraditional investment strategies that are driven by current market circumstances and typical in private equity. Such non-traditional investment strategies include, but are not limited to, active minority positions, governance strategies, sector-specific strategies, and other strategies that may use unconventional instruments such as debt arrangements, collateralizations, corporate joint ventures, credit enhancements, leasing, off-balance sheet financings, etc.

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Optimization - The best solution among all solutions available for consideration. Constraints on the investment problem limit the region of solutions that are considered and the objective function for the problem by capturing the investor's goals correctly, providing a criterion for comparing solutions to find the better ones. The optimal solution is the solution among those admissible for consideration that has the highest value of the objective function.

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Optimization - Management of an investment portfolio in such a way that return is maximized for a given level of risk and other constraints, or risk minimized for a given expected return level and other constraints.

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Optimizer - Mathematical algorithm that maximizes an objective function subject to minimizing given constraints.

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Option - Contracts that give the purchaser the right, but not the obligation, to buy or sell an underlying instrument at a certain price (the exercise or strike price) on or before an agreed date (the exercise period). For this right, the purchaser pays a premium to the seller. The seller (writer) of an option has a duty to buy or sell at the strike price, should the purchaser exercise his right.

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Option - Contracts that give the purchaser the right, but not the obligation, to buy or sell an underlying instrument at a certain price (the exercise or strike price) on or before an agreed date (the exercise period). For this right, the purchaser pays a premium to the seller. The seller (writer) of an option has a duty to buy or sell at the strike price, should the purchaser exercise his right.

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Option - Contracts that give the purchaser the right, but not the obligation, to buy or sell an underlying instrument at a certain price (the exercise or strike price) on or before an agreed date (the exercise period). For this right, the purchaser pays a premium to the seller. The seller (writer) of an option has a duty to buy or sell at the strike price, should the purchaser exercise his right.

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Option (on a Fixed Income Security) - The right or privilege to either buy (call option) or sell (put option) a designated amount of a particular fixed income security or class of securities during a time period ending on the expiration date of the option.

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Option Premium - The amount a seller receives in return for the contingent obligation to sell or buy if the option is exercised.

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Option-Adjusted Analysis - A method that strips out embedded options in securities such as callable bonds and mortgage-backed securities, enabling comparisons with other security types within a consistent framework.

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Other Property Types - Includes real estate related assets not included in one of the following categories: office, industrial, retail, multifamily, hotels, for sale residential, or senior housing. Examples would include Real Estate Operating Companies and Self Storage Facilities.

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Outsourcer - A portfolio company that intends to provide services in a manner that will cause the outsourcing, on more than a de minimis basis, to the private sector of existing U.S. state and local public sector jobs.

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Over the Counter (OTC) - The market for securities and traded products that are not listed on the major exchanges. OTC options are options with negotiated premium, strike price, and expiration date.

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Over-the-Counter (OTC) - The market for securities and traded products that are not listed on the major exchanges. OTC options are options with negotiated premium, strike price, and expiration date.

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Overlay - An investment process which is used to modify the risk profile of a portfolio using financial instruments. An overlay can either increase or decrease exposure to a set of financial risk factors.

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Paper Trade - Testing an investment strategy by engaging in a real time stream of activity simulating the actual analysis and execution required to implement the strategy.

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Partial Duration Analysis - A method that measures the price sensitivity of a security or a portfolio to changes in different parts of the yield curve.

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Partial Interest - Divided or undivided rights in an asset that represent less than the whole (or less than 100% of the rights).

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Participant - An individual that takes part in, or contributes to, one of the CalPERS Supplemental Income Plans.

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Participant - A person that takes part in, or contributes to, one of the CalPERS Supplemental Income Plans.

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Participating Mortgage - An investment structure where the lenders (CalPERS) return consists of mortgage interest plus potential contingent interest expressed as a percentage of property operating cash flow and/or property appreciation upon sale or refinancing.

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Participation Shares in CalPERS Construction Loan Program - LIBOR or prime-based floating rate construction loans targeted for low- to moderate-income housing located in California. The projects are managed by BRIDGE Housing Corporation and underwritten by leading financial institutions. CalPERS then purchases participation shares in the underwritten construction loans.

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Partner - A partner is a member of a partnership and is responsible for all aspects of portfolio management as set forth in the investment partner?s contract with CalPERS.

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Partnership Agreement - Legal document that sets forth the terms and conditions of an investment vehicle. The partnership agreement also establishes the roles of general and limited partners.

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Partnership Investment - An investment in a Limited Partnership.

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Passive Investment - Investing in a manner that attempts to replicate the characteristics and performance of a market index. In theory, passive investing/management assures investment performance is neither worse nor better than the market as a whole. In practice, actual results differ from the results reported for the index due to transactions costs and tracking error.

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Passive Investment - Investing in a manner that attempts to replicate the characteristics and performance of a market index or benchmark. In theory, passive investing/management assures investment performance is neither worse nor better than the market as a whole. In practice, actual results differ from the results reported for the index due to transactions costs and tracking error.

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Passive Portfolio - Investing in a manner that attempts to replicate the characteristics and performance of a market index. In theory, passive investing/management assures investment performance is neither worse nor better than the market as a whole. In practice, actual results differ from the results reported for the index due to transactions costs and tracking error.

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Payment versus Delivery Repurchase Agreement - A short-term, often overnight, sale of securities with an agreement to repurchase the securities at a slightly higher price. In a Delivery Versus Payment Repurchase Agreement, the securities used as collateral are delivered to the custody bank of the investor.

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Performance Attribution - The process of attributing portfolio returns to causes. It decomposes past performance into separate components or factors contained within a multi-factor model.

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PIK (Payment in Kind) - Bonds or preferred stock whose interest is paid in the form of additional bonds or preferred stock.

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Placement Agent - Any person or entity hired, employed, engaged or retained by or acting on behalf of an External Manager or on behalf of another Placement Agent as a finder, solicitor, marketer, consultant, broker or other intermediary to raise money or investments from or to obtain access to CalPERS, directly or indirectly, including without limitation through a CalPERS Vehicle.

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Policy Asset Allocation - CalPERS' strategic asset allocation target weights.

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Policy Index - The Policy Index is calculated as the sum of each asset class' strategic target weight in the portfolio times its actual total return.

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Policy Range - The permissible allocations of an asset class set by the Investment Committee.

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Pooled Funds - Funds from many individual investors that are aggregated for the purposes of investment, as in the case of a mutual or pension fund. Investors in pooled fund investments benefit from economies of scale, which allow for lower trading costs per dollar of investment, diversification and professional money management.

Pooled Funds - Funds from many individual investors that are aggregated for the purposes of investment, as in the case of a mutual or pension fund. Investors in pooled fund investments benefit from economies of scale, which allow for lower trading costs per dollar of investment, diversification and professional money management.

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Power Center - A larger community center retail property that typically serves customers within a 5- to 10-mile radius. Power centers typically offer general merchandise at discounted price points and often feature an array of ?category killer? retailers. The size range is typically 250,000- 600,000 square feet. The projects typically incorporate at least three anchors.

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Preferred Return - A term in the partnership agreement that describes a minimum return that is paid to the limited partners before the general partner receives any share of the profits.

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Preferred Stock - Stock shares that represent a portion of ownership in a company, with the shares normally carrying fixed dividends. Sometimes the shares have voting rights, but not generally.

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Prepayment Analysis - A method that stress tests Collateralized Mortgage Obligations by varying the prepayment assumptions to understand and anticipate how the structure changes in a constantly fluctuating interest rate environment.

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Prepayment Speed Assumption (PSA) - The PSA, also referred to as Prepayment Standard Assumption, is a percentage expression of the relationship between the actual and expected CPR based on the PSA prepayment assumption. The PSA ramp assumes the mortgages prepay slower in the first 30 months of seasoning. 100% PSA indicates a starting rate of 0.2% CPR increasing 0.2% per month for the first 30 months. A constant 6% CPR is assumed for the remaining life of the mortgage.

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Pricing Risk - The risk that the fair value of an asset cannot be established.

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Primary Metropolitan Statistical Area (PMSA) - A geographic unit used by the Bureau of the Census for reporting consolidated demographic and economic information. Each PMSA consists of a large urbanized county or cluster of counties that demonstrates very strong internal economic and social links, in addition to close ties to other portions of a larger urbanized area or CMSA (Consolidated Metropolitan Statistical Area).

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Primary Obligor - The entity directly responsible for making interest and principal payments on an outstanding obligation. Investors will look to a secondary obligor (i.e., credit enhancer, fronting bank, etc.) should the primary obligor fail to make these payments.

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Principal Borrower - A borrower with exclusive rights to borrow securities from a specified portfolio(s) for a specified length of time in return for a guaranteed fee. The principal borrower may or may not be responsible for investing the cash collateral from securities lending on behalf of the sponsor.

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Principal Component Analysis - A method that measures the movements of the yield curve in terms of three main factors: level, slope, and curvature.

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Private Asset Class Board Investment Consultant - An individual or organization that provides specialized professional assistance to the Investment Committee related to an asset class regarding strategy and policy analysis, performance analysis and monitoring, and independent advisory service to the Investment Committee.

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Private Equity Investments - Investments that are privately-held and illiquid. These investments are often structured as limited partnerships with strategies of investing in venture capital, growth equity, buyouts, mezzanine financing, and other investment strategies that are not based on public market activities.

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Privately Placed - Privately Placed is a negotiated sale in which the securities are sold directly to institutional or private investors, rather than a public offering. Such placements are not registered with the Securities and Exchange Commission.

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Privately Traded Domestic Money Market Securities - For the purpose of this policy, defined as Section 4(2) commercial paper securities. Section 4(2) commercial paper is used to finance non-current transactions (i.e., acquisitions or stock buybacks). Paper issued under the 4(2) exemption is targeted to "accredited" investors (typically defined by Regulation D) who are deemed qualified to make investments by virtue of their industry or size.

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Proper Instructions - Instructions received by the custodian from CalPERS, any Investment Manager acting on CalPERS' behalf(including without limitation any securities lending agent), or any person duly authorized by either of them with respect to the pertinent asset. Such instructions may be in writing, signed by the authorized person, or may be through electronic or electro-mechanical devices, or may be through other means detailed in the custodial contract. In addition to the above forms of instructions, the custodian may accept trade affirmations or confirmations from an institutional delivery system, such as CalPERS, shall certify to the custodian, and cause each Investment Manager to similarly certify, the names and specimen signatures of persons authorized to give proper instructions. The custodian shall be entitled to rely upon the identity and authority of such persons, and upon the actions taken by such persons, until it receives notice from CalPERS or the Investment Manager to the contrary.

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Property Life Cycle - The cycle of business which a restaurant or other business experiences (i.e. newly opened, established, failing, failed).

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Property Sites - The location of a property and its physical characteristics.

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Proxy - Written power of attorney given by shareholders of a corporation authorizing a specific vote on their behalf at corporate meetings.

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Prudence Certificate - The prudence certificate includes (1) signatures of the investment officers or portfolio managers involved in reviewing the transaction; (2) their verification that the credit enhancement is a prudent use of CalPERS funds and that the transaction has been made with care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting on a like capacity and familiar with those matters would make; (3) verification that the transaction does not constitute a prohibited transaction within the meaning of the California Public Employees' Retirement Law (constituting Article XVI, Section 17 of the California Constitution); and (4) verification that the staff is unaware of any fees, compensation, agreements, or arrangements constituting a conflict of interest under the California Public Employees' Retirement Law (constituting Article XVI, Section 17 of the California Constitution) with respect to any member of the Board or any of the CalPERS employees or internal investment contractors.

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Prudent Person Opinion - An opinion from a consultant or external resource subject to the Fiduciary Standard of Care that the proposed investment is a prudent investment consistent with Article XVI, Section 17(c) of the California Constitution and Section 20151 (c) of the California Government Code, i.e., made with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the coduct of an enterprise of a like character and with like aims.

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Prudent Person Opinion - An opinion from a consultant or external resource subject to the Fiduciary Standard of Care that the proposed investment is a prudent investment consistent with Article XVI, Section 17(c) of the California Constitution and Section 20151(c) of the California Government Code, i.e., made with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.

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Prudent Person Opinion - An opinion from a consultant or external resource subject to the Fiduciary Standard of Care that the proposed investment is a prudent investment consistent with Article XVI, Section 17(c) of the California Constitution and Section 20151 (c) of the California Government Code, i.e., made with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.

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Public Real Estate Equity Securities (PREES) - Real estate securities, including real estate investment trusts (REITs) and real estate corporations, whose stocks are publicly-traded.

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Rating Category Determination (RCD) Letter - Privately-issued alphabetical and numerical designations issued by the credit rating agencies to give relative indications of non-publicly rated bond and note creditworthiness.

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Ratings (Rated) - Various alphabetical and numerical designations used by institutional investors, Wall Street underwriters, and commercial rating companies to give relative indications of bond and note creditworthiness. Standard & Poor's and Fitch use the same system, starting with their highest rating of AAA, AA, A, BBB, BB, B, CCC, CC, C, and D for default. Moody's Investors Services uses Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, and D. Each of the services use + or - or +1 to indicate half steps in between. The top four grades are considered investment grade ratings.

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Real Estate Consultant - A consulting firm hired by the Committee to advise the Committee on Real Estate issues. The Real Estate Consultant reports to the Committee.

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Real Estate Delegation Resolution - A separate resolution and document that conveys authority from the Investment Committee to Staff to execute investment transactions that comply with guidelines.

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Real Estate Information Standards (REIS) - Standards developed through the cooperative efforts of PREA, the National Association of Real Estate Investment Managers (NAREIM), and NCREIF to increase the consistency with which real estate investments are evaluated and reported.

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Real Estate Investment Trust (REIT) - Refers to a private or publicly traded company which typically invests in income-producing properties and which qualifies as a REIT under Sections 856-860 of the Internal Revenue Code of 1986. As a REIT, a company must distribute to its shareholders at least 95 percent of its taxable income and is not subject to federal (and typically state) income tax to the extent income is distributed, among other requirements.

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Real Estate Manager - A firm hired to manage a real estate portfolio (typically public securities) for CalPERS.

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Real Estate Operating Companies - Companies with revenue derived from real estate services such as property management, brokerage, construction, development and investment management.

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Real Estate Partner - A firm which acts as the general partner or investment manager in a separate account or commingled fund in which CalPERS has an investment.

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Real Estate Strategic Plan - A multi-year plan that describes how the Real Estate Unit and Portfolio will be structured, staffed, and managed. The plan also addresses how to invest, where to invest, and how much to invest. Additionally, the plan states the objective and role of CalPERS overall investment portfolio.

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Real Rate-of-Return - A nominal return adjusted to exclude the impact of inflation.

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Real Return Relationships - The historical perspective looking at expected returns, less inflation with the expectation that the real return is mean reverting.

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Real Return Risk - Real Return Risk is the price volatility produced by changes in market inflation expectations.

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Rebalancing - The process of modeling a portfolio through an optimizer or other portfolio construction method to generate a trade list that better aligns a portfolio with its investment objective.

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Rebalancing - The movement of portfolio asset class exposures closer to policy target weightings, generally resulting in a reduction in active (benchmark-relative) risk.

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Rebalancing - The process of modeling a portfolio through an optimizer or other portfolio construction method to generate a trade list that better aligns a portfolio with its investment objective.

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Reconstitution - The screening which occurs periodically for potential additions or deletions to the index. The screening examines the market capitalization of Real Estate Investment Trust (REIT) stocks, their content, concentration of ownership and position in the market sector. Stocks which no longer meet the criteria of the REIT index according to this policy will be eliminated from the index while new stocks which have qualified in the past year are included. A tolerance level will be applied to stocks which have dropped from the index since the past year in order to minimize transactional costs.

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Reconstitution - The periodic reformulation of a benchmark index which may entail the addition or deletion of securities along with changes to the parameters which determine the relative weight of included assets.

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Recourse Debt - Amount of a debt guarantee; a financial liability contingent on the occurrence of an event such as borrower default or a certain decline in the equity value of an investment. Recourse debt includes letters of credit, lines of credit, Credit Accommodations, Subscription Financing, and other financing vehicles that serve as debt guarantees.

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Recourse Debt - Amount of a debt guarantee; a financial liability contingent on the occurrence of an event such as borrower default or a certain decline in the equity value of an investment. Recourse debt includes letters of credit, lines of credit, Credit Accommodations, Subscription Financing, and other financing vehicles that serve as debt guarantees.

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Recourse Debt - Recourse debt is debt for which CalPERS has the obligation (direct or indirect, absolute or contingent) to pay the debt to the lender.

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Recourse Debt Allocated - The amount of recourse debt which has been allocated to an investment strategy and may or may not have been drawn or utilized to date.

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Regional Mall - A retail property that serves customers residing within a large trade area, often spanning a five to 15-mile radius. Regional malls emphasize current fashion goods spanning the general, apparel, home furnishings and other merchandise categories. The size range is generally 400,000-800,000 square feet. The projects typically feature two or more anchors. The anchor chains may lease their stores from the mall owner or may own them independently and operate subject to a reciprocal easement agreement with the mall owner.

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Reinvestment Risk - Reinvestment Risk is the uncertain future yield opportunities for investing funds that become available due to call, maturity, or coupon payments.

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Repurchase Agreement - Agreement between a seller and a buyer, usually of U.S. government securities, whereby the seller agrees to repurchase the securities at an agreed upon price and, usually, at a stated time.

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Reserve Currency Benchmark Country - Reserve Currency Benchmark Countries are those countries whose currency is held in significant quantities by other national governments as part of their foreign exchange reserves. Reserve currencies typically consist of the U.S. dollar, the Euro, the British Pound, and the Japanese Yen.

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Restricted Company List - A list of companies for which trading, by CalPERS or by restricted persons, of public securities is limited by this Policy.

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Restricted Persons - A Restricted Person includes: Chief Executive Officer; Deputy Executive Officers; Assistant Executive Officers; Chief Actuary; All employees of the Investment Office; All employees of the Office of Enterprise Compliance; Division Chief of the Fiscal Services Division; All employees of the Investment/Fund/Retirement Program Accounting Section of the Fiscal Services Division, except the Retirement Program Accounting Units; All employees of the Office of Audit Services, except for any Program Evaluators - IS, Staff Program Evaluator - IS, Senior Program Evaluators, Specialists - IS, the Senior Program Evaluator (Public Agency Team) and all employees directly reporting to the Senior Program Evaluator (Public Agency Team); All employees of the Health Benefits Branch whose positions are designated in the CalPERS Conflict of Interest Code at 2 Cal. Code Regs. Section 560; All employees (and their direct supervisors) of the Information Technology Services Branch who perform work assignments within the Investment Office's physical and virtual secured area, and who have the potential to obtain access to non-public investment-related information; General Counsel, Deputy General Counsel, Assistant Chief Counsel ?Investments, Staff Counsel and Senior Staff Counsel reporting to the Assistant Chief Counsel ? Investments, Assistant Chief Counsel - Advice, Staff Counsel and Senior Staff Counsel who advise the Health Benefits Branch, and Staff Counsel and Senior Staff Counsel who advise on CalPERS procurement or services contracts; Chief Information Security Officer; and the secretaries and assistants to any persons covered by above. .

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Retail - Multi-tenant or single tenant buildings where tenants sell goods, food, services, or entertainment. Includes enclosed malls, open air malls, power centers, neighborhood centers and street retail. Also includes theaters and entertainment centers. Development projects (vertical construction) which are primarily retail are included in this category.

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Return - A measure of the total performance of an investment over a designated time period. The return calculation for private equity is typically based on the internal rate of return, net of all fees and expenses.

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Return - A measure of the total performance of an investment over a designated time period.

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Return Deviation - The difference between the total return of a portfolio and the total return of the benchmark index.

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Return Factor - A common factor to which sensitivity within the active portfolio is desired due to its returns being statistically significant or reliably forecastable over time.

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RICS - Appraisal and Valuation Standards (Red Book) - Mandatory rules, best practice guidance and related commentary followed by Royal Institution of Chartered Surveyors (RICS). The RICS global property professional?s organization?s focus is to help set, maintain and regulate property-related standards.

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Right of First Offer - Within the context of a joint venture, this is a right giving one owner of a property or position (Owner A) a first chance to buy the property or position if another owner (Owner B) decides to sell. If Owner A refuses to make an offer, the property or position can then be sold to a third party. If Owner A makes an offer and Owner B rejects the offer, the property or position can be sold, generally limited to a price no less than the Owner A offer, or some negotiated percentage of the offer from Owner A.

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Right of First Refusal - Within the context of a joint venture, this is a right giving one owner of a property or position (Owner A) a first chance to buy the property or position if another owner (Owner B) decides to sell. Owner B must have a legitimate offer with specific terms and conditions, which Owner A has the option to match, consummating the purchase of the property or position. If Owner A refuses, the property or position can then be sold under said terms and conditions.

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Risk - A measurable probability of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable. Risk in this context is also referred to as "standard deviation," which is a statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution.

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Risk - A measurable probability of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable. Risk in this context is also referred to as "standard deviation", which is a statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution.

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Risk - A measurable probability of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable. Risk in this context is also referred to as standard deviation, which is a statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution.

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Risk - A measurable probability of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable. Risk in this context is also referred to as

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Risk Adjusted Performance - Performance results evaluated on the amount of risk taken to generate the results, generally by evaluating the standard deviation of the returns generated.

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Risk Adjusted Rate of Return - The total return adjusted for volatility of returns over time. That is, for two investments having an equal total return over an investment period, that investment which experiences the least volatility of returns has the higher risk-adjusted rate of return. The standard calculation of risk-adjusted rate of return is the "sharpe ratio," defined as the difference between the investment return and the average T-Bill rate over the same period, divided by the standard deviation of the investment return over the period.

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Risk Attribution - The process of decomposing total risk and attributing it among the factors contained within a multi-factor model.

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Risk Budget - An investment approach where one uses measures of risk to assist in the allocation, management, and monitoring of the investments of an entity, such as a pension fund.

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Risk Factor - A common factor to which sensitivity is not desired within the active portfolio due to its returns being too volatile or unpredictable over time.

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Risk Management - The process of defining, identifying, measuring, and managing risk.

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Risk Management Tools - Systems, models, and analyses of portfolios that provide forecasts of portfolio risks and returns and correlation of risks and returns across investments and support the portfolio management process.

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Roundtrip Trade - Within a 30-calendar day period, a Participant purchases shares of an investment fund, subsequently sells shares of that same investment fund and then purchases back shares of the same investment fund, in any order (i.e., in/out/in or out/in/out), regardless of whether each leg of the Roundtrip Trade is made sequentially (i.e., purchases and sales are made in other investment funds in between each leg of the Roundtrip Trade). An Exempt Transaction will not be counted as one of the legs of a Roundtrip Trade.

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S&P GSCI TR - The S&P GSCI Total Return Index (S&P GSCI TR) (formerly the Goldman Sachs Commodity Index ? Total Return) is an index which measures the returns from maintaining a passive, long only exposure to a basket of 1st nearby commodity futures contracts. There are currently 24 commodities that meet the requirements for inclusion. Since the 24 commodity futures contracts will come to expiry (often into physical delivery), the S&P GSCI TR deals with this by assuming that the index mechanically rolls out of the 1st nearby contracts into the next liquid nearby contracts at the official settlement prices on the 5th-9th business day of each month (essentially 20% per day). The S&P GSCI TR also includes the return on collateral, assumed to be cash in the amount equal to the value of the commodities, earning a daily Treasury bill rate.

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Safe Harbor Rules (IRC 503(e)) - Restricts investments to no more than 25 percent in any transaction involving the plan sponsor.

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Safekeeping - Storage and protection of a customer's financial assets, valuables, or documents, provided as a service by an institution serving as an agent and where control is delegated by the customer, also as custodian.

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Sale Leaseback - A financing arrangement in which an owner-user sells a property to a buyer (CalPERS) and then simultaneously arranges to lease the property back from the buyer for continued use.

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Sampling - A method of indexation whereby a representative sample of the index constituents, rather than every share in the index, are purchased.

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Scenario Analysis - Projects returns over a number of changing situations (such as interest rates, curve twists, spreads, etc.) and weighs each situation to arrive at an average expected return. This process allows comparisons to varying types of securities and portfolios.

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SEC - The Securities and Exchange Commission.

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SEC - The Securities and Exchange Commission. This is the federal agency created by the Securities Exchange Act of 1933 to administer that act and the Securities Act of 1933, formerly carried out by the Federal Trade Commission.

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Sector Risk - Sector Risk is the risk of holding sectors proportionally different from the index.

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Security - Instrument that signifies an ownership position in a corporation (stock), a creditor relationship with a corporation or governmental body (bond), or rights to ownership such as those represented by an option, subscription right, and subscription warrant.

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Security Selection - Strategies that seek to mitigate market factors through a variety of hedging techniques with the objective of providing a return based solely on its stock/bond selection analysis.

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Senior Housing - Includes independent living, assisted living, skilled nursing, and congregate care facilities. Development projects (vertical construction) which are primarily senior housing are included in this category.

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Senior Investment Officer of Asset Allocation - The Senior Investment Officer is responsible for all asset allocation programs and reports directly to the Chief Investment Officer of CalPERS.

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Senior Investment Officer of Global Equities - The Senior Investment Officer is responsible for all Global Equities programs and reports directly to the Chief Investment Officer of CalPERS.

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Senior Investment Officer of Global Fixed Income - The Senior Investment Officer is responsible for all Global Fixed Income programs and reports directly to the Chief Investment Officer of CalPERS.

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Senior Investment Officer of Global Real Estate - The Senior Investment Officer is responsible for all Global Real Estate programs and reports directly to the Chief Investment Officer of CalPERS.

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Senior Investment Officer of Real Assets - The Senior Investment Officer is responsible for all Real Assets programs and reports directly to the Chief Investment Officer of CalPERS.

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Separate Account - A partnership between CalPERS and a Real Estate Partner through which the Real Estate Partner manages Investment, Disposition, and Debt Financing Amounts of behalf of CalPERS.

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Shopping Center - Retail property with less than 800,000 square feet of shopping space serving the immediate trade area (three to 10 miles). The category includes neighborhood shopping centers, community shopping centers, power centers, and specialty centers.

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Short Duration Program - A program managed by CalPERS staff that is designed to earn a return premium versus traditional short duration assets through a modest increase in portfolio duration and by purchasing a broader universe of short duration securities than those typically available to traditional money market portfolios.

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Short Sale - The sale of a security that is not owned by the investor but rather is borrowed from a broker. The investor eventually repays the broker in kind by purchasing the security in a subsequent transaction.

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Short Selling - Selling securities that are not owned and buying them back later to take advantage of an anticipated decline in price.

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Short Selling - Selling securities that are not owned and buying them back later to: 1) take advantage of an anticipated decline in the price; or 2) to protect a profit in a long position.

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Shortfall Risk - The risk of underperforming the benchmark

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Side by Side Investment - An investment made along side a commingled fund typically in a property too large for the fund to absorb. Terms for side by side investment may be more favorable than those of the commingled fund.

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Silviculture - The theory and practice of controlling forest establishment, composition and growth.

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Sovereign - A security issued by a foreign government or government sponsored agency.

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Sovereign Debt - A country's government debt. In event of default, recourse for payment is made to the applicable sovereign government.

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Special Assessment Bond - A bond secured by a compulsory levy of special assessments, as opposed to property taxes, made by a local unit of government on certain properties to defray the cost of local improvements and/or services that represents the specific benefit to the property owner derived from the improvement. In California, these are usually 1915 Act or 1911 Act Bonds.

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Special Assessment Districts - Special assessment districts may be initiated: 1) either through a resolution by city council; or 2) at the request of a property owner whose property would be included in the district to be assessed. Such districts describe a method of financing public improvements by distributing the cost of a project over those property owners who will reap a direct benefit. The types of local public improvements that are most often paid for through special assessments include sanitary sewers, storm drains, water mains, road paving, dust control, sidewalk construction, and street lighting.

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Special Situations - A term used to describe non-traditional investment strategies that are typical in private equity. Such non-traditional investment strategies include, but are not limited to, mezzanine strategies, active minority positions, governance strategies, sector-specific strategies, and other strategies that may use unconventional instruments such as debt arrangements, collateralizations, corporate joint ventures, credit enhancements, leasing, off-balance sheet financings, etc.

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Specialist Credit - Strategies that seek to profit from price anomalies between the variety of debt instruments (i.e., government, corporate, high yield, sovereign, etc.) and convertible bond instruments.

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Specialty Fashion Centers - A retail property that typically serves affluent customers within moderate to larger trade areas, ranging from five to 15 miles. Specialty centers typically offer fashion-oriented goods and often feature many of the same chain stores that appear in better regional malls. These centers tend to be smaller than regional malls, typically spanning 50,000-250,000 square feet of shopping space. These centers may or may not be anchored.

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Specific Risk - The component of total risk that is unique or idiosyncratic to an individual security.

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Speculation - Assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss.

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Speculative Development - A development that is less than 75 percent pre-leased.

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Spin Offs - Companies which are created by separation from another company and begin to trade publicly on their own.

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Spin Offs - Companies which are derived from other companies and begin to trade publicly on their own.

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Split Rated Security - A security that has a different credit classification by two rating agencies. For the purpose of this policy, a security is called a split-rated security, if Standard & Poor's and Moody's report a difference in the ratings.

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Split-Rated Security - A security that has a different credit classification by two rating agencies. For the purpose of this policy, a security is called a split-rated security, if Standard & Poor's and Moody's report a difference in the ratings.

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Spring-Fed Pool - A list of outside consulting firms selected based on RFI or RFP processes which serve as independent fiduciaries for the Global Real Estate Unit.

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Staff - Staff refers to CalPERS Investment Office staff.

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Staff Internal Procedures Manual - A manual that describes the detailed procedures Staff is required to follow in managing the Real Estate program including the investment process.

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Stand By Purchase Agreement - See Lines of Credit.

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Standard & Poor's (S&P) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 10-symbol system. The ranges extend from the highest investment quality, which is AAA, to the lowest credit rating, which is D. Securities rated BBB- or greater are considered investment grade. Securities rated BB+ or below are considered speculative.

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Standard & Poor's (S&P) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 10-symbol system. The ranges extend from the highest investment quality, which is AAA, to the lowest credit rating, which is D. Securities rated BBB- or greater are considered investment grade. Securities rated BB+ or below are considered non-investment grade.

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Standard & Poor's (S&P) - A nationally-recognized credit rating agency that grades the investment quality of bonds in a 10-symbol system. The ranges extend from the highest investment quality, which is AAA, to the lowest credit rating, which is D. Securities rated BBB- or greater are considered investment grade. Securities rated BB+ or below are considered speculative.

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Standard Deviation - A statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. It is widely used as a measure of risk for portfolio investments. It is the square root of variance. In a symmetrical distribution, such as the normal distribution, approximately two-thirds of all outcomes fall within +/-1 standard deviation, and approximately 95 percent of all outcomes fall within +/-2 standard deviations.

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State Street Bank Short-Term Investment Fund - An institutional money market mutual fund managed by State Street Global Advisors.

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State Street Bank Short-Term Investment Fund (STIF) - An institutional money market mutual fund managed by State Street Global Advisors.

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Statistical Arbitrage - This investment style is comprised of hedge funds that utilize quantitative models to remove all common sources of risk from an equity portfolio (i.e., capitalization, book to market value, dividend yield, etc.) so that only stock selection risk remains. Different from market neutral managers in that quantitative factor models are used to identify and minimize.

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Stranded Assets - The electric utility industry in California underwent restructuring in January 1998, facilitating increased competition among providers. In the transition to a more competitive environment, electricity providers generated transition costs, commonly referred to as stranded costs. The California Public Utilities Code allows the electricity provider to recover these costs by charging existing, future residential, and small commercial customers. Stranded assets are fixed income securities collateralized by the receivables of electricity providers for recovering stranded costs.

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Strategic Investment Vehicles - Special-purpose investment vehicles formed by CalPERS with other partners to make strategic investments.

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Strategic or Concentrated Block Funds - These are funds that focus their investments in relatively few companies. Their intent is usually to gain board of director?s representation or to sell their investment stake back to the company at a premium in undervalued but fundamentally sound going concerns, and then proactively work with management, boards of directors and shareholders on major issues of strategy, capital structure, management and performance.

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Strategy - A discrete investment portfolio where all the portfolio?s assets are managed with a common methodology.

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Strategy - Broadly refers to or describes an investment product; or, when used in the context of trading, describes a plan of action for constructing a portfolio or an exit strategy. An example of a strategy would be a domestic large cap growth ?strategy? or an active or passive ?strategy?.

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Stress Testing - A method of risk analysis in which simulations are used to estimate the impact of worst-case situations.

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Structure Risk - Structure Risk arises from the options implicit in bonds (e.g. callable and optional sinking fund bonds) or the rules governing cash flow that differs from expectations.

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Structured Note - An instrument representing a financial obligation created by modifying one or more standard financial obligations or instruments (i.e., a bond or mortgage) to create a risk/return profile or cash flow payment stream. This type of risk or return profile differs from the standard financial instrument from which it derives.

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Structured Securities - An instrument that is secured by assets like receivables, mortgages, and bonds. Examples of structured securities are asset backed securities, mortgage backed securities, commercial mortgage backed securities, collateralized mortgage obligations, collateralized debt obligations, and collateralized loan obligations.

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Style Benchmark - A custom benchmark composed of individual securities or a combination of published benchmarks with returns closely tracking an individual manager's returns. Style benchmarks help determine what portion of a manager's performance can be explained by its style and what portion can be attributed to stock selection.

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Style Bias - The difference between an aggregate or individual manager benchmark and the target.

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Sub-Custodian - Any bank or other financial institution appointed by the master custodian to provide custody of assets within a specified region.

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Subscription Financing - A transaction in which a lender makes a loan to the separate account or the commingled fund, as the borrower, and the borrower transfers the right to call the capital commitment of CalPERS to the lender as security for the loan. CalPERS agrees to pay its capital commitment in cash to the lender if the borrower fails to pay the debt.

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Subscription Financing - Subscription financing is a form of leverage in which debt incurred by an investment partnership is secured by the capital commitment of an investor, which may be used to pay the debt for the investment partnership.

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Subscription Financing Allocated - The amount of subscription financing which has been allocated to an investment and may or may not have been drawn or utilized to date.

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Subscription Financing Outstanding - The amount of subscription financing that is currently being utilized on investments.

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Substitution - Investing in an asset that replaces the risk and return characteristics of some other asset.

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Super Regional Mall - A very large retail property that serves customers residing within the largest trade areas, often spanning 5- to 25-mile radii. Super regional malls emphasize current fashion goods and offer even broader variety and assortment of merchandise than regional malls. The size range is typically over 800,000 square feet and sometimes reaches 2 million square feet. The projects typically feature at least two, and can occasionally include as many as six, different anchors. As in malls, the anchor chains may lease their stores from the mall owner or own them separately and operate them subject to a REA.

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Supranational Entities - Multinational organizations usually formed for providing financial assistance to less developed countries. Examples of supranational entities include the World Bank and the International Monetary Fund (IMF).

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Sustainability - Balancing the fulfillment of human needs with the protection of the natural environment so that these needs can be met not only in the present, but in the indefinite future.

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Swap - Private agreement between two companies to exchange cash flows in the future according to a prearranged formula.

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Synthetic Strategy - Combination of obtaining market exposure via futures contracts or swaps and enhancing return through the management of the underlying cash portfolio. The market exposure is achieved through a long S&P 500 futures position and the remaining capital is invested in money market instruments with a maturity of 90 days or longer that have greater duration or credit risk.

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Systematic Risk - That portion of total risk that stems from exposure to the market in general and cannot be eliminated by diversification.

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Target Retirement Date Funds - A series of diversified funds each of which has a pre-determined asset mix and allocation that will vary over time until and often into retirement. This dynamic asset allocation, or glidepath, is designed to reduce the level of risk as the participant approaches retirement. The target date refers to the date the participant reaches retirement age.

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Tender Offer - A public offer to buy all or a portion of a specific security for cash, other securities, or both.

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Tender Offer - An offer to buy securities for cash, other securities, or both.

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Term - The duration of the partnership or direct investment.

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Total Return - The sum of the appreciation return and income return.

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Total Return Swap - A swap where the non-floating rate side is based on the total return of an instrument with a life longer than the swap. Total return swaps are also used to transfer credit exposure.

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Total Risk - An estimate of the absolute level of predicted standard deviation of return over a one year time period.

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Tracking Error - The annualized standard deviation of the difference between the total return of the portfolio and the total return of the benchmark. The term tracking error is frequently used to describe return deviation, the total return of a portfolio, minus the total return of a benchmark index.

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Tracking Error - The annualized standard deviation of the difference between the total return of the portfolio and the total return of the benchmark. The term tracking error is frequently used to describe return deviation, the total return of a portfolio, minus the total return of a benchmark index.

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Tracking Error - Also known as active risk, tracking error is the annualized standard deviation of the active return, or the volatility of return, relative to a benchmark.

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Tradeable Currency - A currency included in the benchmark currency hedge. A tradeable foreign currency is one that can be converted to the U.S. dollar at low cost as determined in advance by the Currency Portfolio Manager.

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Transaction - An agreement between a buyer and a seller to exchange an asset for payment. A transaction often takes the form of a partnership, co-investment, or direct investment.

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Transaction - A event between a buyer and a seller during which assets are exchanged for payment. Typically documented in some form of agreement.

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Transition - The process for which an MDP firm is moved out of the MDP programs and into one of CalPERS' other investment programs via a direct contract. This definition applies solely within the context of the MDP Transition Policy.

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Transition Account - An account set up and maintained by the CalPERS Investment Office that will be utilized to obtain securities that are requested by an External Manger.

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Transition Portfolios - A portfolio designed to separate the cost and performance impacts on investment programs or asset classes, related to cash or security movements and transactions not associated with the on-going investment management of affected portfolios. Segregating these costs and performance impacts is in line with standard market practice. Furthermore, transactions within Transition Portfolios must adhere to additional levels of oversight to monitor compliance with permitted use restrictions and verify transactions.

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Tri-Party Repurchase Agreement - The same as a delivery versus payment repurchase agreement, except that in a Tri-Party Repurchase Agreement, the collateral is delivered to an independent third party trustee, as opposed to the investor's custody bank.

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Triple Net Leased Asset - A net lease under which the lessee assumes all expenses of operating the property, including taxes, insurance, and operating expenses.

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Trustee - A bank designated as the custodian of funds and official representative of bondholders. Trustees are appointed to ensure compliance with the trust indenture and represents bondholders to enforce their contract with the issuer.

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Turnarounds - Investments in companies experiencing financial and/or operating issues. These companies may or may not be insolvent.

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Un-leveraged Bank Loans - Loans made by banks that are typically partially secured by assets and are made to investment grade companies with a debt/EBITDA ratio less than 3.5 and have a spread to LIBOR of less than 250 basis points.

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Uncovered Call - A strategy in which an investor writes (sells) call options on the open market without owning the underlying security. This stands in contrast to a covered call strategy, where the investor owns the security shares that are eligible to be sold under the options contact.

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Uncovered Calls - A strategy in which an investor writes (sells) call options on the open market without owning the underlying security. This stands in contrast to a covered call strategy, where the investor owns the security shares that are eligible to be sold under the options contract.

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Uniform Standards of Professional Appraisal Practice (USPAP) - Current standards of the appraisal profession, developed for appraisers and the users of appraisal services by the Appraisal Standards Board of The Appraisal Foundation. The Uniform Standards set forth the procedures to be followed in developing an appraisal analysis, or opinion and the manner in which an appraisal, analysis, or opinion is communicated.

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Unitized Fund Structure - Unitized Fund Structure allows multiple participants to contribute to a pool of assets while maintaining historical records and producing individual Net Asset Values (NAVs) for each participant. Each participant's share in the portfolio is separately accounted for using a system that accounts for each class of shares' proportional entitlement to the portfolio's Total Net Assets. The system maintains all of the funds' holdings at the fund level, and maintains the fund prices at the class level.

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Unitized Fund Structure - Unitized Fund Structure allows multiple participants to contribute to a pool of assets while maintaining historical records and producing individual Net Asset Values (NAVs) for each participant. Each participant's share in the portfolio is separately accounted for using a system that accounts for each class of shares' proportional entitlement to the portfolio's Total Net Assets. The system maintains all of the funds' holdings at the fund level, and maintains the fund prices at the class level.

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Unitized Fund Structure - Unitized Fund Structure allows multiple participants to contribute to a pool of assets while maintaining historical records and producing individual Net Asset Values (NAVs) for each participant.

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Up-Front Closing Fee - A fee paid up-front by an issuer to an underwriter or a group of underwriters, which agrees to purchase an entire security issue for a specified price, usually for resale to others.

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Usufruct Rights - The right to use and derive profit or benefit from property that belongs to another person, as long as the property is not damaged.

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Variable Rate Bond - A bond whose yield is not fixed but is adjusted periodically according to a prescribed formula.

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Variable Rate Note - Securities having a coupon or interest rate adjusted periodically on a set date. Typically, variable rate notes have coupons based on a longer-term rate index and are reset once a year or longer.

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Variance - A statistical term for the variability of a random variable about its mean. The variance is defined as the sum of the squares of the deviation from the mean.

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Venture Capital - The financing of rapidly-growing companies that do not have access to public equity or debt financing. Early-stage venture capital may involve financing a company during its initial years when assets may be limited and when there may be no revenues. Late-stage venture, sometimes referred to as growth equity or expansion capital, may involve financing a company that has established products or services and revenues.

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Vintage Year - The year in which the first capital drawdown of the partnership occurs.

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Volatility - Expected or historical annualized standard deviation of returns. Returns can be total returns or the differential returns between a portfolio and its benchmark.

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Volatility - Expected or historical annualized standard deviation of returns. Returns can be total returns or the differential returns between a portfolio and its benchmark.

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Volatility - Expected or historical annualized standard deviation of returns. Returns can be total returns or the differential returns between a portfolio and its benchmark.

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Waiver Fee - A fee paid by an issuer to an underwriter or a group of underwriters to waive any requirement of the Credit Instrument (Letter of Credit), Reimbursement Agreement, or Trust Indenture.

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Watchlist Status - Indicates a level of concern, the degree of which shall be unique to each situation with the parameters specified in the relevant policy.

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Weighted-Average Days to Maturity - The average number of days that each dollar of unpaid principal due in the portfolio remains outstanding.

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What-If Risk Analysis - To forecast the impact on Fund-wide risk characteristics from reallocating investment dollars between asset classes and portfolio managers and also the consideration of potential new investments.

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White Paper - A document that puts forward a specific position or solution to an issue or problem.

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Yankee (Bond) Sovereign - A foreign bond denominated in U.S. dollars that is registered with the Securities and Exchange Commission for sale in the U.S. For purposes of this policy, Yankee Sovereigns must be issued by companies domiciled in G11 countries, Australia, Ireland, or Scotland, and must be rated at least A3 (Moody's) and A- (Standard & Poor's).

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Yankee Bonds - Securities issued in the domestic market by foreign borrowers. Yankee bonds must be issued by companies domiciled in G11 countries, Australia, Ireland, or Scotland, and must be rated at least A3 (Moody's) and A- (Standard & Poor's).

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Yield Curve - Graph showing the term structure of interest rates by plotting the yields of all bonds of the same quality with maturities ranging from the shortest to the longest available.

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Yield Curve Risk - Yield Curve Risk is the price changes induced by the changing slope of the yield curve.

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