CalPERS adopted a conflict of interest policy to assure consultants' investment advice is fair and unbiased, according to an announcement by the $186 billion fund. "The policy requires current consultants to identify any future circumstances that may create actual, potential or perceived conflict of interests prior to providing advice on a specific subject or investment, including a recommendation on a money manager," the statement said. "Consultants seeking to do business with CalPERS would also be required to disclose conflicts as part of the bidding process."
The California Public Employees' Retirement System, Sacramento, had relied on a state-required statement of economic interests disclosure form, SEC filings and disclosures by consultants during the contract process, the statement noted.
The staff "believes that this policy addresses a critical need, particularly in light of the recent SEC report" that recommended consultants tighten their compliance policies "to ensure that they are fulfilling their fiduciary obligations," according to another CalPERS report.
CalPERS uses 28 investment consultants, including Russell, Pension Consulting Alliance, R.V. Kuhns, Strategic Investment Solutions and Wilshire for general investment matters. It uses nine consultants for alternative investments, five for real estate and nine R.V. Kuhnsulting Alliance, R.V. Kuhns, Strategic Investment Solutions and Wilshire for general investment matters. It uses nine consultants for alternative investments, five for real estate and nine for corporate governance.
CalPERS also approved a country selection policy for investing in emerging-markets debt, based on credit ratings issued by Standard & Poor's, Moody's and Fitch. Debt issued in developed markets would have to carry at least a BB- rating, while local-currency debt and debt issued by subnational governments and corporations would have to carry an investment-grade BBB- rating.
Separately, the system plans to seek emerging managers of long-only publicly traded equity and hedge funds of funds for a second manager development program. The managers must have less than $2 billion in assets under management. CalPERS plans to allocate an initial $50 million to $100 million to each emerging manager in the program; the allocations will be on an opportunistic basis and will come from global equity. Unlike its existing manager development program, CalPERS would not necessarily take an equity stake in the firm.
Through the manager development program, CalPERS seeks to identify and develop emerging money management firms to enhance its risk-adjusted performance. Also, CalPERS seeks to expand the marketplace by working with emerging mangers that might not otherwise obtain assets.