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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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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