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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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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