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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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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