CalPERS Investment Office Saves Millions in Expenses over Six-Year Period; More Cost Effective than Peers
May 16, 2017
Communications & Stakeholder Relations
Brad W. Pacheco, Deputy Executive Officer
Wayne Davis, Chief, Office of Public Affairs
Contact: Megan White, Information Officer
Increase in internally managed funds results in significant cost reductions
SACRAMENTO, CA - The California Public Employees' Retirement System (CalPERS) today reported annual ongoing fees and expenses for its investment operations have declined by approximately $281 million* since fiscal year (FY) 2010-11. The annual CEM Benchmarking survey also found that CalPERS is a low-cost system compared to its peers.
"The Investment Office has worked diligently to decrease the costs to the Fund," said Henry Jones, CalPERS Board vice president and Investment Committee chair. "The team's commitment to internal asset management and innovative cost reductions have resulted in significant savings."
The cost to manage the portfolio for FY 2015-16 was approximately $1.47 billion, with external management fees contributing 92 percent of the amount.
Contributors to the savings include transitioning assets from external managers to internal management when possible, reducing external management fees, and decreasing the number of outside consultants and advisors. These savings exclude profit sharing fees to external managers, which can be volatile.
"We are encouraged by our progress and committed to finding new ways to decrease costs while not compromising quality," said Ted Eliopoulos, CalPERS chief investment officer."Our team has been very successful in bringing more investments in-house and we look forward to doing this even more in the future."
Each year, CalPERS participates in the CEM Benchmarking survey, which independently analyzes the System's costs against a customized peer group of both U.S. and global pension investment organizations. The benchmark figure is constructed to reflect the costs peers would incur if they had the same asset allocation mix as CalPERS.
For the calendar year 2015, CEM found the total cost to manage the CalPERS portfolio was 32.5 basis points, compared to CEM's benchmark of 42.1 basis points. CalPERS was deemed "cost-advantaged" when compared to its peers.
Prior to FY 2015-16, the CEM Benchmarking survey cited management fees based on tax documents reported for the calendar year, and included estimated partnership and other commingled expenses along with base fees. The implementation of the CalPERS Private Equity Accounting and Reporting System in 2015 allowed the Investment Office to more precisely segregate and report profit sharing and external management fees from other expenses. Those management fees and profit sharing figures are reported in the Comprehensive Annual Financial Report and in the annual Private Equity review.*
CalPERS has spent considerable time and effort 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 CalPERS 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.
To learn more, view the CalPERS Investment Cost Effectiveness (PDF).
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 1.8 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 $322 billion. For more information, visit www.calpers.ca.gov.
*This release was updated May 23, 2017. Total savings include the cost of Private Equity partnership expenses and Fund of Fund fees.