CalPERS’ Manager Cutback Could Lead to Larger Mandates for Emerging Managers

At an investment board meeting on Monday, CalPERS CIO Ted Eliopoulos expanded on the pension fund’s plan to cut ties with 50 percent of its external managers.

Eliopoulos said the cuts would give smaller, high-performing managers a chance to transition out of the “emerging manager” program and obtain larger mandates from the pension fund.

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“The strategic portfolio restructuring includes our ongoing commitment to emerging managers,” [Eliopoulos] continued. To this end, the fund is creating “a new opportunity for successful emerging managers to compete for new capital commitments and transition to larger direct relationships in CalPERS’ portfolio.”

Firms in its existing incubator program often outgrow the “emerging manager” label before amassing sufficient size to qualify for regular mandates, according to investment staff. Portfolio Manager Laurie Weir called this “a kind of a limbo,” which CalPERS aims to solve in its ongoing restructure.

“The new manager transition program will provide the opportunity to invest in follow-on funds with incrementally larger commitment amounts,” Weir said. This would give CalPERS staff “significant additional time to test and improve the skills and capacity of investment manager firms.”

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“Managers will have to constantly compete to meet or exceed expectations in order to remain in the manager transition program,” Weir noted.

CalPERS could commit up to $7 billion over the next five years to these “transitioning” managers, according to ai-cio.com.

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