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CalPERS Investment Office Saves Millions in Expenses over Five-Year Period; More Cost Effective than Peers

The California Public Employees’ Retirement System (CalPERS) reported that annual ongoing costs for its investment operations have declined by approximately $134 million for the 5-fiscal-year period from 2010-15...

The California Public Employees’ Retirement System (CalPERS) reported that annual ongoing costs for its investment operations have declined by approximately $134 million for the 5-fiscal-year period from 2010-15. The System also reported that it was found to be cost-advantaged in a CEM Benchmarking (CEM) survey, when measured against its peers.

"Reducing cost is a priority at CalPERS, as outlined in our Investment Beliefs," said Henry Jones, CalPERS Board Vice President and Investment Committee Chair. "I am proud of the significant efforts the Investment Office has undertaken to decrease costs while not compromising quality."

In the System’s review, the cost to manage the portfolio for Fiscal Year 2014-15 was approximately $1.4 billion, with external management fees contributing 91 percent of that figure. When excluding profit sharing fees to external managers, which can be volatile, the annual ongoing cost to manage the portfolio decreased by $44 million during the last fiscal year, and by $134 million over the past five fiscal years.

Contributors to the savings include transitioning assets from external managers to internal management when possible, reducing external management fees, and decreasing the number of external consultants and advisors.

"We continue to identify ways to reduce cost without compromising quality or efficiency," said Ted Eliopoulos, CalPERS Chief Investment Officer. "I am thankful these efforts are making an impact, and I am optimistic we will continue to make meaningful reductions in the future."

CEM, an independent provider of objective benchmarking information, found that the annual cost to manage the CalPERS portfolio was approximately $52 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 2014 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 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.

Next Finance , May 23

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