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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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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