CalPERS' New Crusade
The volatile markets of the past few weeks have shaken many investors' faith in commodities. Not Russell Read. The former Deutsche Bank Asset Management investment picker, who begins his new job as chief investment officer at the $207 billion California Public Employees' Retirement System (CalPERS) on June 1, finds comfort on the tree farm he started five years ago near his summer home in Brooks, Me.
The farm is part of a project Read is conducting with the University of Maine to restore the land to the way it looked in the 1700s. It'll be 45 to 100 years before his 10,000 trees reach maturity, a fact that doesn't bother Read. "The investment world can be dominated by short-term thinking," says the 43-year-old. But this "is a reminder that some of the best investments can take lots of time."
Read will need patience in his new job managing the largest and most closely followed pension fund in the U.S. CalPERS is often at the forefront of hot investment topics, from securities regulation to corporate governance. With Read, it'll wade into another controversial arena: commodities. Read says that, while crude oil, pork bellies, and the like aren't part of CalPERS' investment mix now, they will be -- soon. "Commodities [have been] fairly scary investments for most institutions," he says. But "there are wonderful opportunities today."
In March, investment research firm Ibbotson Associates released a study showing that, of the asset classes it examined, commodities were the top performer in the years since 1970. Commodities are also considered a diversification tool, because their performance does not track that of stocks or bonds. Ibbotson found that in each of the eight years in which stocks declined, commodities were the top performers. "The models are telling us a very large percentage -- 10% or higher -- should be allocated to commodities," says Thomas M. Idzorek, Ibbotson's director of research. Read agrees with that view.
Skeptics worry that CalPERS is entering too late. The prices of many commodities have doubled in recent years, and investors are getting twitchy. "Right now a lot of people are struggling with the fear that they may allocating at a cyclical peak," says Bryan Decker, chief investment strategist at the consulting firm Evaluation Associates. Read acknowledges that this isn't a good time to plunge in headlong. He says he'll be looking less at the commodities themselves and more at companies and technologies that benefit from their high prices, such as oil and alternative energy producers. "It's a great time for innovation," he says. "It's as if long-dormant technologies like wind and solar power have been reborn."
Read's interest in commodities runs deep. His grandmother was a trader in Chicago; his father managed a chemical company. Attending high school in Houston during the 1970s oil boom, he entered a national science competition with solar panels he made from spray-on silicon. He went on to get a PhD in political economy from Stanford University, writing his thesis on the impact of natural resources on economic growth. In 1997, he helped create the first commodities mutual fund, the $2 billion Oppenheimer Real Asset fund.
Read's investment ideas blend with CalPERS' social activism. In the past, though, CalPERS got superior returns by shaking up companies other investors had abandoned. By targeting commodities, Read will have to figure out a way to beat the market in an asset class that has already been discovered.
By Christopher Palmeri