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DEFINED BENEFIT

Emerging managers could get bigger slice under CalPERS manager-reduction plan

Theodore Eliopoulos
Theodore Eliopoulos

CalPERS’ plan to reduce the number of external managers by more than half also will include a new $7 billion effort to increase allocations to emerging managers, transitioning them from small allocations of tens of million of dollars in funds of funds and emerging managers development programs to receiving hundreds of millions of dollars as a full-fledged manager.

The plan was outlined by Theodore “Ted” Eliopoulos, chief investment officer, of the $304.1 billion California Public Employees’ Retirement System, Sacramento, in a conference call Monday. The plan shows there will be clear winners in addition to losers at the nation’s largest defined benefit plan.

“We are taking the next step in our multiyear effort to reduce risk and complexity in the portfolio,” Mr. Eliopoulos said.

In 2007, CalPERS had direct relationships with more than 300 managers. Now it has around 210, and the plan reduces the number to around 100. The numbers do not include individual managers participating in funds of funds.

Mr. Eliopoulos said the plan will enable CalPERS to better manage its relationships with managers, retaining those with strong investment performance, and to continue fee savings that have reduced the cost of managing the CalPERS portfolio over the past five years by $293 million. He said CalPERS paid $1.6 billion in fees for the fiscal year ended June 30, 2014.

The full details of the manager-reduction plan are scheduled to be discussed at the CalPERS investment committee meeting June 15.

CalPERS officials previously discussed plans to trim the number of external managers, particularly in private equity, stating that investment returns fall off significantly for managers not in the top performance quartile in that asset class.

Mr. Eliopoulos said Monday that CalPERS executives want to reduce the number of direct private equity managers to 30 from 100, a move bound to benefit some of the largest private equity players in the world. Blackstone Group, Apollo Global Management, Carlyle Group and KKR & Co. all manage a lot of money for CalPERS and are among the pension fund’s best-performing private equity relationships.

Mr. Eliopoulos said for private equity, which includes funds-of-funds managers, CalPERS has more than 300 manager relationships.

Mr. Eliopoulos acknowledged it could take years to pare the private equity portfolio, because CalPERS has contractual relationships with private equity managers that could stretch for as long as a decade.

He said some commitments potentially could be sold on the secondary market, but he would not provide any details as to CalPERS’ plans.