CalPERS Investment Office Cuts Expenses for Two-year Period, Tops Peer Benchmark in Cost Survey

"CalPERS has gone to great lengths to understand the role of costs in its portfolio and how best to mitigate their impact," said Henry Jones, CalPERS Board Member and Investment Committee Chair. "It’s nice to see positive results from our efforts."

In CalPERS review, the cost to manage the portfolio for Fiscal Year 2012-13 was found to be approximately $1.3 billion, a decrease of $80 million during the last two fiscal years. Contributors to the savings include a focus on reducing external management fees and the number of external consultants, as well as insourcing many management functions.

Internal management, external fee reductions among primary contributors

"The CalPERS Investment Office strives to always be acutely aware of costs, cost-drivers and effective cost-management strategies," said Ted Eliopoulos, CalPERS Interim Chief Investment Officer. "The recognition from CEM and our own internal findings tell us that we’re on the right path, but cost-effectiveness is something that we must continue to diligently monitor in all areas of our operations."

CEM, an independent provider of objective and actionable benchmarking information, found the cost to manage the CalPERS portfolio was $136 million lower than its peers. CEM cited internal management of public assets, passive management of equities and lesser use of fund-of-funds as contributors to the cost-savings.

The CalPERS CEM Calendar Year 2012 Report analyzed cost data at 14 large US 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 was 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.