CalPERS said Monday it’s working on a plan to cut in half the number of outside investment managers it hires, hoping to reduce expenses and simplify its portfolio management.
The move would take place over the next five years and is part of an effort by CalPERS to take a bite out of the $1.5 billion it spends annually on outside investment management.
The California Public Employees’ Retirement System uses 212 different investment firms to help it manage the real estate, private equity and other holdings in its $301.4 billion portfolio.
“That will be moving toward 100 (firms) by the year 2020,” CalPERS spokesman Joe DeAnda said. “None of this is going to be done overnight.” The CalPERS investment committee will discuss the strategy at its meeting next Monday.
He said CalPERS believes having fewer managers will enable the nation’s largest public pension fund to negotiate less expensive deals with the remaining managers. “We would gain better negotiating terms because we’d have fewer relationships,” he said.
The bulk of the outside firms manage CalPERS’ real estate and private equity holdings, which total about $60 billion in assets.
Under Chief Investment Officer Ted Eliopoulos, who was named to the post last fall, CalPERS is seeking to improve overall investment returns while tamping down risk. Despite strong profits in recent years, CalPERS is still feeling the effects of the 2008 market crash and is only 77 percent funded. That means that while it has plenty of cash to meet liabilities for now and the near future, it has only 77 cents on hand for every $1 in long-term retirement obligations.
CalPERS has been pushing for years to get relief on management fees. In 2010, it negotiated discounts totaling more than $260 million with a group of private equity managers, although the sum covered several years. More recently, CalPERS decided last fall to sell off its $4 billion hedge-fund portfolio, ridding itself of an asset class that yielded mediocre returns but cost the pension fund more than $100 million in annual fees.