The California State Teachers' Retirement System, West Sacramento, exploring changes in hiring and pay to reduce its dependence on external managers, is looking to one of Canada's biggest public retirement funds for advice.
The second-largest U.S. public pension plan, which manages a third of its $149 billion portfolio in-house, is consulting the Ontario Municipal Employees Retirement System, Toronto, which internally manages about 85% of its C$55.1 billion ($55.1 billion) portfolio.
The California pension fund posted a 2.3% gain on investments in 2011; the Ontario fund, about 3.2%. Following the Ontario plan's model, in which investment officers are treated as employees of a corporation, might give CalSTRS more flexibility to respond to market conditions, spokesman Ricardo Duran said.
“They act more like a private investment firm,” he said of OMERS in a telephone interview. “They have the ability to be more flexible with their hiring.”
Rick Miller, chairman of the OMERS Administration Corp.'s 14-member board, is scheduled to meet with the California fund's board March 1 in Glendale, Calif.
As of June 30, CalSTRS managed 33% of its portfolio internally, up from 30% a year earlier, according to its annual reports to the state Legislature.
OMERS ultimately plans to manage 90% of its portfolio in-house, said spokesman John Pierce. In 2010, the fund realized $25 in earnings for every dollar spent on its investment staff, compared with $10 for every dollar on outside managers, Mr. Pierce said by telephone.
“OMERS is independent from government,” he said. “Our investment team has 100% skin in the game. They're not working for anyone else.”
U.S. public pension plans operate under a variety of models, said Keith Brainard, research director at the National Association of State Retirement Administrators. Several systems are looking to Canadian-style or non-government structures, he said.