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

Increase in internally managed funds results in significant cost reductions

The California Public Employees’ Retirement System (CalPERS) today reported annual ongoing fees and expenses for its investment operations have declined by approximately $402 million since fiscal year 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 fiscal year 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.

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.