CalPERS committee rethinking active management

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California Public Employees' Retirement System's investment committee is considering whether active managers, once fees are taken into consideration, achieve better returns than the fund's passive index strategies.

The evaluation is part of a review CalPERS began Monday of its investment beliefs, a five-month process that could eventually determine the fate of some of the fund's outside investment managers.

More than half of CalPERS' $254.9 billion assets are in passive strategies. CalPERS investment consultant Allan Emkin from Pension Consulting Alliance told the investment committee that at any given time, around a quarter of external managers will be outperforming their benchmarks, but he said the question is whether those managers that are doing well are canceled out by other managers that are underperforming. Complicating the matter, he said, is that the outperforming managers change over time.

Janine Guillot, chief operating investment officer, said that the investment committee is expected to approve specific investment beliefs at the Aug. 19-21 CalPERS meeting. She said 27 preliminary interviews of 12 CalPERS board members, 10 staff members, three money management executives and two external consultants showed a wide disparity of views as to whether active management is working for CalPERS. The interviews were done as a prelude to today's investment beliefs discussion.