An expected August vote by the $254.9 billion California Public Employees' Retirement System could accelerate moves to manage more of the pension fund's $131 billion equity portfolio in-house, reducing its reliance on outside managers.
CalPERS already internally manages 83% of its equity portfolio, a percentage that has increased over the years, but approximately $22 billion is still managed by external managers.
The move is being considered as part of a larger review of investment beliefs at the nation's largest retirement system, a process that not only could eventually reduce the number of active equity managers Sacramento-based CalPERS employs, but also reduce the fund's allocations to real estate and private equity.
The review is scheduled for a vote at CalPERS' Aug. 19 investment committee meeting.
Regardless of the vote, massive changes to investments won't follow immediately, said Janine Guillot, CalPERS' chief operating investment officer, in an interview.
A vote, for example, stating that passive management is better than active wouldn't necessarily mean CalPERS would forgo active managers, said Ms. Guillot.
She said it would be a philosophy that would guide the system instead of an edict written in stone.
Eighty-three percent of CalPERS' $131 billion equity portfolio is already internally managed in seven passive index and two non-cap-weighted smart-beta strategies.
CalPERS also manages more than 93% of its fixed-income portfolio internally in active portfolios and has been gradually increasing that allocation.
Ms. Guillot would not address directly the question of whether CalPERS could eventually manage all or almost all of its equity portfolio internally.
“We are going through a thoughtful process to determine our investment process, and it's too early to draw a conclusion,” she said.
But Ms Guillot does not see a day where CalPERS' overall portfolio would be entirely internally managed. She said certain asset classes, such as real estate and private equity, require on-the-ground expertise of external managers in those areas.
She did, say, however, that the review could help determine the appropriate level of investments in private equity and real estate, looking at such issues as how fees for outside managers in those asset classes affect the pension system's returns.
Ms. Guillot said the investment committee could determine different investment beliefs for different asset classes.