Giant US pension fund to ramp up Euro deals Californian fund boss

Sunday Herald, The, Jul 10, 2005 by Ken Symon in Paris

THE largest US pension fund is actively seeking major new investments in Europe and has dismissed problems over the EU constitution as a "blip".

Charles Valdes, the chairman of the Californian Public Employees Retirement System (Calpers) investment committee, said that the fund may spend about dollars-1billion more on European buyout investments this year.

Valdes told the annual International Financial Forum of Paris Europlace last week that Calpers holds more than a quarter of the dollars-23bn (pounds-13bn) in funds it has invested in private equity in Europe.

Valdes said that Calpers intends to increase the dollars-6bn (pounds-3.4bn) it invests because "we see many opportunities".

He said that while investments in the US provided an average rate of return of 18-per cent, the return on its European investments was 24-per cent.

The bullish comments fly in the face of fears that the political crisis caused by the "No" votes in the European Constitution referenda in France and the Netherlands could deter international investors from moving into the bloc.

And they are significant in coming from the head of the investment committee of a fund with dollars-180.4bn (pounds- 103.7bn) in assets as of April 30.

Valdes said: "We're not very concerned about the referendum results on the EU constitution. We think that was a political problem."

And he said that it would be up to the EU leaders to ensure that differences on these issues were resolved.

He said: "We don't want to see any sort of warfare. Trading insults with other countries doesn't add to any vision of Europe.

"You must realise that it was because of the European Union that we decided it was a good idea to look at Europe.

"The EU created the economic conditions that investors are looking for."

He acknowledged that there were issues that needed to be addressed in the eurozone countries to liberalise the economies. He said: "There are economic problems with high levels of unemployment, but it's just a temporary thing in our opinion."

Research suggests that Calpers is not alone in its view.

A study by Greenwich Associates showed that US institutional investors raised their holdings of international stocks by 30-per cent last year, lured by higher returns.

And international equity investments held by American institutions rose to dollars-620bn (pounds-356.6bn), the study said. This was due to investment appreciation and the weakness of the dollar.

Overseas investment allocations rose to 13-per cent in 2004 compared with 11-per cent the year before, because pensions funds are under pressure to raise their funding levels, the study said.

John Webster, a consultant at Connecticut-based Greenwich, said international stocks should continue to gain a larger proportion of American institutional assets because they are expected to outperform US stocks by as much as 0.6 of a percentage point.

Webster said: "There is a widespread perception among [US] institutional investors that overseas stocks are undervalued."

The Morgan Stanley Capital International EAFE Index gained 18- per cent in 2004, compared with a 9-per cent gain by the US Standard & Poor's 500 index.

Gerard Mestrallet, chairman of Paris Europlace, said the Paris financial sector was committed to achieving European financial integration.

He said: "We are in a new environment, an environment where many certainties are being shaken.

"And yet, I would like you to hear the message that the Paris marketplace is confident. It is heavily committed to the battle for an integrated and more competitive financial Europe."

ken. symon@sundayherald. com