The California Public Employees' Retirement System (CalPERS) will halve the number of external investment managers it currently uses by 2020.
In its annual report, the fund announced it will reduce third party managers from 200 to approximately 100 over the next four years and said it will have fewer, albeit larger, commitments with the remaining managers.
‘This will lead to better alignment of interests between CalPERS and its managers and additional leverage to negotiate better terms, both potentially leading to improved performance,’ chief investment officer, Ted Eliopoulos, said in the report.
A similar in-sourcing plan has been unveiled to Modern Investor by the CIO of the UK's Pension Protection Fund Barry Kenneth, who was the magazine's cover star in October.
CalPERS, which exited the hedge fund space in 2014/2015, also said it remains committed to its emerging manager programs, having nearly $12 billion invested with more than 390 of them.
‘We announced a new commitment for what we are calling Transition managers – managers that are successful in our emerging manager programs, or managers new to CalPERS, but that are not yet ready for the size of a commitment normally given to a more established manager,’ Eliopoulos said.
Commenting on the 2014/2015 performance – the fund achieved a tie-weighted rate of return of 2.4% this fiscal year, with the ending market value of assets at $301 billion – Eliopoulos said it was affected by macro dynamics.
‘Fund performance this fiscal year was affected by the impact of tepid global economic growth and increased short-term market volatility. The strong performance of the US dollar against most foreign currencies also limited returns in international investments,’ he said.
‘Although the fiscal year return rate was not as strong as previous years, the three-year return of 10.9% and five-year return of 10.7% exceeded policy benchmarks by 59 and 34 basis points, respectively,’ he added.
Real assets push
Eliopoulos said the overall performance of the fund was helped by the recent strength of CalPERS’ real assets program, which made up 11% of the fund as of June 30, 2015.
‘Investments in income-generating properties like office, industrial and retail assets, as well as infrastructure and forestland, returned 12.4%, outperforming the Pension Fund’s real assets benchmark by 90 basis points.’
Currently, CalPERS has 53.8% invested in global equities, 17.6% in global fixed income, 9.6% in private equity, 10% in real assets, 5.2% in inflation assets, 2.5% in cash and 0.4% in absolute return strategies.