"CalPERS Effect" Continues to Improve Company Performance
October 14, 2014
External Affairs Branch
Robert Udall Glazier, Deputy Executive Officer
Brad Pacheco, Chief, Office of Public Affairs
Contact: Joe DeAnda, Information Officer
Shareholder engagement adds 14 percent value to share prices of targeted companies
SACRAMENTO, CA – The California Public Employees’ Retirement System’s (CalPERS) engagement with companies and management on corporate governance matters continues to improve stock performance, CalPERS Investment Committee was told this week.
Approximately 188 companies selected by the Pension Fund publicly and privately since 1987 on average outperformed the Russell 1000 by 14.4 percent over the five years after CalPERS began engagement, commonly referred to as the “CalPERS Effect.” The companies lagged the index by nearly 39 percent in the three years prior to CalPERS involvement.
“CalPERS’ approach to improving portfolio returns by engaging the management of poorly performing companies to rethink their governance and strategy continues to work,” said Wilshire Associates, the Pension Fund’s primary consultant, in a report to the Committee. “The evidence is equally clear that many corporate assets are poorly managed and that resources spent on identifying and rectifying those cases can create substantial opportunity and premium returns for active shareholders.”
In addition to measuring company performance against the Russell 1000 index, the Wilshire analysis also measured performance against sector indices in the Russell 1000. For the three years prior to CalPERS initiation, the engaged companies returned 36.1 percent on a cumulative basis below their respective index peers. For the five years after CalPERS activism, the same companies returned 11.2 percent above their industry peers.
“This report validates our effort to improve the governance and performance of the companies we own,” said Henry Jones, Investment Committee Chair. “It also shows a strong positive correlation between sound corporate governance practices and long-term share value.”
Companies have responded favorably over the years to CalPERS concerns such as the need for improved Board quality and leadership, majority voting in uncontested Board elections, shareowners’ advisory votes on executive compensation, and annual Board elections.
CalPERS is the largest public pension fund in the U.S., with approximately $293 billion in assets. CalPERS administers health and retirement benefits on behalf of 3,064 public school, local agency, and state employers. There are more than 1.6 million members in the CalPERS retirement system and more than 1.3 million members in its health plans. For more information about CalPERS, visit www.calpers.ca.gov.