CalPERS to Cut External Money Managers by Half

Categories: California Developments,National Developments
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The Wall Street Journal  by Timothy W. Martin, June 8, 2015

The largest U.S. public pension fund intends to sever ties with roughly half of the firms handling its money, one of the most aggressive industry moves yet to reduce fees paid to Wall Street investment managers.

The California Public Employees’ Retirement System, or Calpers, will tell its investment board on June 15 of its plans to reduce the number of direct relationships it has with private-equity, real-estate and other external funds to about 100 from 212, said Chief Investment Officer Ted Eliopoulos. The action will be made public on Monday.

The dramatic move by the $305 billion Sacramento-based retirement system will create some big winners and losers in the investing world. The list of external money managers Calpers uses include some of the biggest names on Wall Street, including private-equity firm Carlyle Group LP, KKR& Co. and Blackstone Group LP. The push by Calpers to downsize could have broader ramifications beyond its own portfolio. Calpers is considered an industry bellwether because of its size and history as an early adopter of alternatives to stocks and bonds, and the shift could prompt other U.S. pensions to scale back their ties to Wall Street. “There really will be a significant amount of discussion at other pensions” about whether they should cut external managers in the wake of Calpers’s decision, said Allan Emkin, a managing director at Pension Consulting Alliance who has advised the fund since the 1980s.

The pullback would take place over the next five years and is expected to save Calpers hundreds of millions of dollars in management fees. It paid $1.6 billion to external managers last year.

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