CalPERS to consider taking activist manager portfolio in-house

CalPERS is evaluating its $2.6 billion external activist manager program to see whether its global equity staff could manage the strategies internally, said a report by CalPERS consultant Wilshire Associates.

The Wilshire report, contained in agenda materials for the Sacramento-based $288 billion California Public Employees’ Retirement System’s Sept. 15 investment committee meeting, said current activist manager strategies are being evaluated in recognition of the considerable resources and experience of CalPERS’ internal equity global governance team.

The report does say that external activist managers bring specialized expertise in company turnaround events that might not exist within the global governance team and have previously been used as a source of ideas for companies that have been put on CalPERS’ focus list. CalPERS engages focus list companies aiming to improve their board governance or environmental policies, and subsequently, better investment results.

“However, these managers have also been responsible for enhancing return volatility/active risk relative to the benchmark and typically charge higher management fees than traditional active strategies,” the report said.

The report offers no timetable for a decision, and CalPERS spokeswoman Rosanna Westmoreland was unable to provide additional information.

As of June 30, CalPERS documents show its largest activist manager was Taiyo Fund Management, with more than $1 billion in assets under management. It was followed by New Mountain Capital with $485 million; Cartica Management, $409 million; Relational Investors, $337 million; and Blum Capital, $168 million.

While CalPERS terminated its hedge fund program last year, it has continued to fund external activist portfolios within its overall global equity asset class.

Back in June, CalPERS officials announced they wanted to cut the overall number of external managers to 100 from 212 within five years.

CalPERS’ global equity program is the largest asset class for the pension fund, with more than $166 billion in assets. Eighty-two percent of those assets are managed internally, usually in passive index or smart beta strategies. The remaining 18% is managed by external active managers.