The report, compiled by Cost Effectiveness Measurement, Inc. (CEM), found that CalPERS saved $144 million compared to its peers, paying less for consulting, custodial, and active investment management services.
Costs to run the pension fund’s investment portfolio were $413.2 million in 2003, compared to a peer benchmark of $557.1 million.
CEM also found that CalPERS investment staff added $7 billion in excess returns over the same time period, while taking less active risk than its peers.
The CEM report reviewed 245 public pension funds in the United States, Europe, Canada, and Australia with assets totaling $1.8 trillion.
“These results validate that staff is doing an excellent job in managing our investments for the least possible cost,” said Rob Feckner, Chair of CalPERS Investment Committee.
CalPERS generated the majority of its cost savings by using fewer outside investment managers and managing its investment portfolio in-house by its investment staff. The System’s outside investment management costs were more than $90 million lower than other public pension funds. The System used significantly less external management than its peers, 36 percent versus 47 percent for its peers.
It also paid less for investment services. CalPERS oversight costs, such as custodial and consulting services, were $14 million lower than its peers.
Even the fund’s internally managed investment strategy, which helped contribute to the bulk of the cost savings, was low cost. CalPERS internally managed investment costs were $2.3 million lower compared to other funds.
“Every dollar saved to operate our investment program is one dollar less that our employers, members, and taxpayers have to pay,” said Mark Anson, CalPERS Chief Investment Officer.
CEM also found that CalPERS added value in all major asset classes, including U.S. and international equity, fixed income, real estate, and private equity. The System earned a 23.3 percent return for the one-year period ended December 31, 2003.
The funds returns were achieved without taking on a lot of risk. According to CEM, the risk that CalPERS took to implement its investment program was 1.4 percent below the U.S. pension fund median of 1.9 percent.
CEM’s report is available on CalPERS web site.
CalPERS is the nation’s largest public pension fund with assets of $166 billion. The System provides retirement and health benefits to more than 1.4 million State and local public employees and their families.
