The California Public Employees' Retirement System decided today to bring the remainder of its international equity index assets under internal management, saving additional annual fees of $1.3 million.
Under today's mandate, CalPERS investment staff will manage the entire international equity index portfolio, which totaled $27 billion on June 30, 2006.
"Not only are we saving money in fees paid to external managers, but we're hoping to generate higher returns from internal management," said Rob Feckner, CalPERS Board President. "Since we have successfully managed our domestic equity index portfolio internally for 20 years, it's time to do the same on the international side."
In February 2005, the CalPERS Board approved transferring up to half of its international portfolio from its external manager, State Street Global Advisers, to a staff-managed fund. By year's end, the staff-managed portfolio had added $43 million in value over the benchmark used to measure the performance of such funds, which hold shares in direct proportion to their weight in a broad-based listing of stocks.
To facilitate expanded internal management, the pension fund hired several key staff from the private sector in recent years. Christianna Wood, Senior Investment Officer of Global Equity, and four other global equity staff brought to CalPERS significant industry experience, including decades of experience in global quantitative portfolio management and trading.
Staff currently internally manages $83.9 billion of CalPERS equities, or 64 percent of the total global equity portfolio. Under the new mandate, $97.2 billion, or 74 percent of all global equity assets, will be managed internally.
Besides portfolio growth and savings on external manager fees, CalPERS will gain more flexibility to take advantage of market opportunities and to develop international versions of existing, successful strategies used by domestic internal managers.
"We will continue to partner with State Street in other ventures such as enhanced indexing and environmental investing strategies to continue what has been a satisfying long-term relationship" said Charles P. Valdes, Chair, CalPERS Investment Committee. "In managing this portfolio, State Street has met all of our objectives for external managers and has exceeded the benchmark."
CalPERS is the nation's largest public pension fund with assets of more than $205 billion. The System provides retirement and health benefits to more than 1.4 million State and local public employees and their families. For more about CalPERS, visit www.calpers.ca.gov.
