CalPERS takes passive international equities in-house

SACRAMENTO, Calif. — CalPERS on Aug. 14 voted to move $13.3 billion — the remainder of its $27 billion passive international equity portfolio — to internal management. The entire external portfolio is run by State Street Global Advisors. The $210.7 billion California Public Employees' Retirement System expects to save $1.3 million in annual fees from the change. With the move, CalPERS staff will internally manage 74% of the system's $131 billion global equities portfolio.

Separately, CalPERS pulled out of MPM BioEquities, a long-short hedge fund focusing on small and midsize biotech stocks. The system redeemed $44.9 million from the hedge fund from April through June, according to records released this month by the pension fund.

Kurt von Emster, an MPM partner who oversees the $200 million biotech fund, said CalPERS — a seed capital investor when the fund was launched in 2001 — has been redeeming its position over the past three years because the pension fund no longer invests in specific sector hedge funds. CalPERS officials declined to provide further comment, according to spokesman Clark McKinley.

SAN FRANCISCO — San Francisco City & County Employees' Retirement System added an "opportunistic strategies" category to its active domestic equity, international equity and fixed-income portfolios, said David Kushner, deputy director for investments at the $14.5 billion fund. The target range for the new allocation will be zero to 5% of assets in each asset class. The change will provide flexibility to invest in strategies that do not generally fit within existing sub-asset classes, including REITs, 130/30, portable alpha and private placement bonds, according to a report from consultant Angeles Investment Advisors.

"There are too many opportunities that we see that don't fit nice and square into one of the boxes," Mr. Kushner said.

No searches are planned.

LINCOLN, Neb. — Lincoln Fire & Police Retirement System restructured the $160 million fund's asset allocation, confirmed John Cripe, compensation manager and plan administrator. Officials increased the plan's active domestic midcap value equity portfolio to 17% of assets from 11%; active global equities to 10% from 6.6%; and hedge funds to 7% from 5.7%. Assets will be distributed to existing managers; no RFPs are planned.

Funding will come from decreasing the active small-cap value equity portfolio to 3% of assets from 13% and the real estate allocation to 10% from 12.8%, Mr. Cripe said. He said he didn't know yet whether any small-cap managers would be terminated. The fund's current active small-cap value managers are: Aegis Asset Management, which runs $11 million for the fund; Royce & Associates, $9 million; Hartland Asset Management, $5.5 million; and Boston Advisors, $4.5 million.

Mr. Cripe said CNL Fund Advisors, which manages roughly $3 million in real estate, will likely be terminated. JPMorgan Asset Management and RREEF America are the system's other real estate managers. Other asset classes will remain unchanged.

PITTSBURGH — Pension liabilities of U.S. corporations rose an average 2.1% in July, according to the Mellon Pension Liability indexes, a set of benchmarks that uses current discount rates to measure the performance of liabilities, confirmed Mellon spokesman Mike Dunn.

Lower interest rates led to the average increase in liabilities, which caused the funding status of a typical U.S. pension plan to fall 1.5% last month, according to a news release. Despite the July increase, however, plans were 7.5% better funded than they were on Dec. 31, according to Mellon's data. The average plan's assets were 3% higher at the end of July than they were at year's end.

Mellon has $870 billion in assets under management.

LONDON — Schroders reported a net outflow of £4.6 billion ($8.7 billion) in institutional assets as of June 30, blamed on poor performances in Japanese equities and a reduction in U.K. balanced mandates, according to financial results released Aug. 14.

"We have strengthened our Japanese equities team and performance has improved," Schroders' CEO Michael Dobson said in a news release.

The institutional outflow was partly offset by net retail inflows of £2.3 billion, led by European equities, emerging markets and absolute-return bond strategies.

Pre-tax profit for the asset management business declined 3% to £96.8 million in the first half of 2006, compared with £99.8 million for the first six months of 2005. However, the 2005 number included a one-time gain of £20.4 million as a result of discontinuing an outsourcing project.

The firm reported £122.3 billion in assets under management as of June 30, essentially unchanged from Dec. 31. Acquisition of hedge fund of funds firm NewFinance Capital, completed in May, contributed £1.7 billion to the total. NewFinance also contributed £700,000 to the pre-tax profits of Schroders' asset management business.

CHICAGO — IBM's cash balance plan did not discriminate against older workers, according to a decision Aug. 7 by the 7th Circuit Court of Appeals in Chicago. The ruling reverses a 2003 federal district court decision that the terms of IBM's cash balance pension plan were not age-neutral. "Removing a feature that gave extra benefits to the old differs from discriminating against them," the appeals court panel said.

The discrimination ruling by U.S. District Court in East St. Louis, Ill., on July 31, 2003, spurred Armonk, N.Y.-based IBM to freeze its $48 billion cash balance plan early last year. IBM had agreed to pay up to $1.4 billion to the plaintiffs if it didn't win the case on appeal.