Calpers scaling back on use of 'emerging' equity fund managers

Los Angeles

THE California Public Employees' Retirement System (Calpers) is sharply scaling back its use of external "emerging" equity fund managers, a potential blow to efforts to promote diversity, as the largest US public pension reworks strategies to meet its return target.

Calpers launched its emerging manager programme in 1991, according to its website. Many of the firms are led by women and minorities, and eligible candidates have less than US$2 billion under management. But the effort has fallen under the same pressures facing traditional managers - the need to produce acceptable gains.

Returns from traditional and emerging managers overall have not contributed enough to achieving Calpers' 7 per cent annual target, chief executive officer Marcie Frost wrote in an Oct 21 memo to the board.

"In the past three months we reduced traditional external managers from US$30-plus billion to US$5 billion - from 17 managers to three," Ms Frost said in the memo. The pension is "now also restructuring emerging manager programme and reducing the number of managers - from five to one and US$3.6 billion to US$500 million".

Pension funds across the US are striving to cut costs, improve returns and shore up their long-term funding status. Calpers, with US$387 billion in assets as of Dec 3, has long been trimming ties with outside managers. The process accelerated under chief investment officer Ben Meng, who started in January.

Calpers spokesman Megan White said the reduction "isn't new news". CIO magazine earlier reported the move.

Traditional managers have underperformed their benchmarks by 48 basis points over the past five years net of fees and emerging managers by 126 basis points, according to Ms Frost.

In the fiscal year through June 30, Calpers spent US$119 million on external equity managers who oversaw US$29 billion, according to an October presentation to the board. The reduction in managers will save US$100 million annually, according to Ms Frost's memo - US$80 million from traditional managers and US$20 million with emerging firms. BLOOMBERG