April 13, 2015

External Affairs
(916) 795-3991
Robert Udall Glazier, Deputy Executive Officer
Brad Pacheco, Chief, Office of Public Affairs
Contact: Joe DeAnda, Information Officer

Internal management, use of index strategies among primary contributors

SACRAMENTO, CA - The California Public Employees’ Retirement System (CalPERS) today reported that annual ongoing costs for its investment operations have declined by approximately $90 million for the five-fiscal-year period from 2009-14. The System also reported that it was found to be 'cost-advantaged' in a CEM Benchmarking (CEM) survey, when measured against its peers.

"Understanding how costs impact the fund is an endeavor we have spent considerable time and resources on," said Henry Jones, CalPERS Board Vice President and Investment Committee Chair. "It's encouraging to see positive results from our efforts."

In the System’s review, the cost to manage the portfolio for Fiscal Year 2013-14 was found to be approximately $1.7 billion, with external management fees contributing 92 percent of that figure.  When excluding profit sharing fees to external managers, fees that can be volatile, the annual ongoing cost to manage the portfolio decreased by $17 million during the last fiscal year, and by $90 million since 2010.

Contributors to the savings include a continued focus on restructuring portfolios, reducing external management fees and the number of external consultants, as well as additional insourcing of investment management functions.

"How we manage costs has a direct impact on the performance of the fund," said Ted Eliopoulos, CalPERS Chief Investment Officer. "The recognition from CEM and our own internal findings tell us that we're on the right path, but costs are a factor that you can't lose sight of; you have to stay vigilant."

CEM, an independent provider of objective and actionable benchmarking information, found that the annual cost to manage the CalPERS portfolio was $206 million lower than its peers. CEM cited internal management of public assets, index-oriented management of equities, and lesser use of fund-of-funds as contributors to the cost-savings.

The CalPERS CEM Calendar Year 2013 Report analyzed cost data at 14 large U.S. and global pension funds to create a benchmark cost figure. The benchmark figure is constructed to reflect what costs peers would incur if they had the same asset allocation mix as CalPERS. CalPERS was deemed 'cost-advantaged' when comparing CalPERS actual cost data against the benchmark.

CalPERS has spent considerable time and effort on reducing costs in all areas of the investment program during the last several years. The focus includes financial reporting, cost awareness and management, fee reductions and benchmarking. Cost effectiveness is also embedded in the System's Investment Belief number eight: 'Costs matter and need to be effectively managed.' The goal of all cost initiatives is to improve net returns on assets.

For more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Our pension fund serves more than 1.7 million members in the CalPERS retirement system and administers benefits for 1.4 million members and their families in our health program. CalPERS' total fund market value currently stands at approximately $300 billion. For more information, visit www.calpers.ca.gov.

Additional Resources

CalPERS Beliefs