CalPERS | Pension360

CalPERS to Cut Investment Fees by 8 Percent Next Year

CalPERS calculates that it will cut investment-related fees by 8 percent in fiscal year 2015-16, according to a report by Bloomberg.

The pension fund has been looking to cut costs recently by reducing the number of private equity managers it invests with and moving more investment management in-house.

According to CalPERS’ proposed budget, obtained by Bloomberg, the 8 percent decrease in fees will come from several areas:

Calpers projects it will pay about $100 million less in fees for hedge-fund investments. The pension has said it would take about a year to unwind all its holdings. It paid $135 million in fees in the fiscal year that ended June 30 for hedge-fund investments, which earned 7.1 percent and added 0.4 percent to its total return, according to Calpers figures.

Brad Pacheco, spokesman for the pension fund, wasn’t immediately available for comment.

Base fees for private-equity investments are projected to decline 7.5 percent to $440.6 million as some investments matured, the number of managers was reduced and Calpers won better terms for new deals.

Base fees for company stock managers are projected to increase 25 percent to $51.3 million. Fees for performance are projected to decrease by $32.6 million because of favorable renegotiated contract terms, Calpers said.

[…]

The largest U.S. state pension fund, known as Calpers, projects that it will pay $930.7 million in base and performance fees to investment firms in the fiscal year that begins July 1, down from more than $1 billion this year and $1.3 billion last year, according to the fund’s proposed budget.

CalPERS managed $295.8 billion in assets as of December 31, 2014.

Photo by rocor via Flickr CC License

Reform Measure Aimed at CalPERS Could Appear on California Ballot by 2016

Back in November, Pension360 covered former San Jose Mayor Chuck Reed’s intention to keep pushing for pension reform even after leaving office.

According to a Reuters report, he’s following through: Reed, along with a coalition of business leaders and politicians, is launching a push to get a pension reform measure on the statewide ballot.

Details are sparse on what exactly the measure would look like.

But it’s likely the measure would aim to make it easier for cities to cut pension payments to CalPERS, or reduce the cost of leaving the fund entirely.

CalPERS, CalSTRS to Step Up Climate Change Engagement Efforts

CalPERS and CalSTRS have issued a joint statement recounting their track records on engaging corporations on the topic of climate change. The statement also outlines future initiatives aimed at stepping up their corporate engagement on the sustainability front.

From the statement:

We recognize climate change as a material risk to society, the economy, and the impacts on our investment decisions. We have been at the forefront of tackling climate change issues through policy advocacy, engagement with portfolio companies and investing in climate change solutions.

CalSTRS and CalPERS both have well-established, thorough vetting processes for potential investments, which seek to test not only for financial potential, but for social, human and environmental impacts, as well.

CalSTRS developed an investment policy for mitigating environmental, social and governance risks under its CalSTRS 21 Risk Factors, adopted in 2008.

* Included in the 21 factors are points specific to environmental concerns such as air quality, water quality, climate change, and land protection.

* This policy guides the Teachers’ Retirement Board’s investment decisions.

* CalSTRS internal ‘Green Team,’ made up of representatives across all investment groups, further identifies ways to avoid or mitigate risks to the investment portfolio posed by environmental, social and governance factors.

CalPERS adopted Investment Beliefs addressing Climate Change issues:

* CalPERS believes long-term value creation requires effective management of three forms of capital: financial, physical and human.

* Investors must consider risk factors, for example climate change and natural resource availability that could have a material impact on portfolio returns

Read the full statement here.

The statement comes as the California legislature considers a measure that would force the pension funds to divest from all coal holdings. The funds have come out against the proposal.

Photo by Paul Falardeau via Flickr CC License

CalPERS Invests $211 Million in U.S. Apartments

CalPERS has committed an additional $211 million to a partnership that invests in apartments in the Western half of the United States.

More details from IP Real Estate:

California Public Employees Retirement System (CalPERS) has made a new $211m (€186.7m) allocation to the Pacific Multifamily Investors partnership.

[…]

Pacific will buy apartment properties at least 11 years old west of the Mississippi. Core assets are typically thought to be less than 10 years old, putting the strategy outide what most funds consider core.

Pacific Urban believes that the properties it will buy still have core attributes and be able to achieve durability of income. A mixture of teachers, firemen, police officers and nurses, are typical tenants of the assets it invests in.

No more than 25% leverage will be used in the portfolio.

Acquisitions to date have been on the West Coast, from Southern California up to Seattle. The partnership can also consider Texas, Salt Lake City and Las Vegas.

The partnership now includes seven properties totaling more than 2,000 units.

CalPERS manages $296 billion in assets as of October 31, 2014.

San Francisco Pension Approves 5 Percent Allocation to Hedge Funds

After months of discussion and delays, the San Francisco Employees Retirement System on Wednesday voted to invest up to 5 percent of its assets in hedge funds.

The pension fund has not previously invested in hedge funds. Its investment staff had previously recommended a 10 and a 15 percent allocation, but the board voted 6-1 for a 5 percent investment.

CalPERS Members Affected by Anthem Hack

Last week’s hack of health insurance provider Anthem Blue Cross exposed millions of Americans to the threat of identity theft – including thousands of members of the California Public Employees Retirement System (CalPERS).

The hackers allegedly stole personal data such as social security numbers, addresses, names, email addresses and birthdays.

According to CalWatchdog, the affected CalPERS members received the following email:

“As many of you have heard in the news, our health plan partner Anthem Blue Cross disclosed late last night that hackers breached its computer systems and the personal information of its members. Like you, we are very concerned and frustrated about this unacceptable breach. We have been in touch with Anthem this morning to ensure they are doing everything possible to protect our members and their families who are enrolled in the plan.”

It’s recommended that those who’ve been affected by the Anthem hack reset their passwords. Additionally, watch out for fake emails and phone calls claiming to be from Anthem – the firm has said it will only be contacting people by mail.

San Bernardino, Bondholders Trade Jabs in Court

A few of San Bernardino’s biggest creditors admitted in court on Wednesday that they are doing everything they can to prevent the city from going through with its current bankruptcy plan – which involves paying CalPERS in full, but shorting other bondholders.

The creditors argued that all creditors – including CalPERS – should be treated with more equality.

From Reuters:

Lawyers for bankrupt San Bernardino, California, and the city’s creditors clashed in federal bankruptcy court on Wednesday, with a major bondholder accusing the city of stoking “Main Street versus Wall Street fires.”

[…]

A major bondholder claimed it should be treated on equal terms to that of the city’s biggest creditor, Calpers, California’s public pension fund.

The growing tension between the city and some of its biggest creditors come after the Luxembourg-based bank Europäische Pfandbrief-und Kommunalkreditbank AG (EEPK), which holds $50 million in pension obligation bonds, filed a lawsuit against San Bernardino in January.

Also suing the city in the same lawsuit are Ambac Assurance Corp., which insures a portion of those bonds, and Wells Fargo Bank, the bond trustee and flagship bank of Wells Fargo & Co.

Paul Glassman, an attorney representing San Bernardino, on Wednesday told the judge overseeing the case that EEPK is concerned that it will not be paid in full and is trying “to block confirmation of the city’s plan any way they can.”

Glassman said EEPK is trying to “cause chaos.”

Meanwhile, Vincent J. Marriott, an attorney for EEPK, said the city had misinterpreted the bank’s lawsuit, accusing it of trying to “stoke Main Street versus Wall Street fires.”

San Bernardino struck a deal last year with Calpers, agreeing to pay the pension fund in full in its bankruptcy exit plan, which it must produce by May 30.

Since then city officials have confirmed to Reuters that San Bernardino intends to pay significantly less than the full amount it owes to EEPK, Ambac and Wells Fargo, and that it views bondholder obligations as less important than its obligations to Calpers.

San Bernardino declared bankruptcy in 2012. It could have impaired pensions as part of its bankruptcy exit plan, but it chose to pay CalPERS in full. Many of the city’s other creditors, however, will not be paid in full.

Photo by Joe Gratz via Flickr CC License

CalPERS Board to Study Impact of Income Inequality on Pension Funds

CalPERS’ Board of Administration will discuss the impact of income inequality on institutional investors at their next meeting, according to slides made available on the pension fund’s website.

The Board of Administration’s investment committee will discuss the issue next week.

California Bill Would Force CalPERS, CalSTRS To Divest From Coal

California Senate President Kevin de Leon has introduced a bill that would force the state’s pension funds to exit all coal investments.

Additionally, CalSTRS and CalPERS would be prohibited from making new coal investments until 18 months after the bill becomes law.

De Leon hinted in November that he would introduce such a bill, and the pension funds had already responded negatively to the proposal.

For CalPERS CIO, Lack of Stock and Bond Experience Not a Problem

The LA Times on Sunday published an interesting and thorough profile of CalPERS chief investment officer Ted Eliopoulos.

It chronicles Eliopoulos’ beginnings as an Ivy League tennis star, his appointment to CIO of the country’s largest public pension fund, and his headline-making decision to pull out from hedge funds.

The piece also dives into why Eliopoulos was an interesting choice for the CIO position, given that he was an expert in real estate but had little experience with stocks or bonds.

From the LA Times:

In turning to Eliopoulos, a consummate insider, CalPERS’ board made what is in some ways an odd choice.

Trained as a lawyer, not an investment professional, Eliopoulos has spent much of his career in state bureaucracies and had never directly managed stocks or bonds — more than 70% of the total CalPERS portfolio — before being named interim chief investment officer a year ago.

His area of expertise had been in buying, selling and managing real estate, which makes up only 10% of CalPERS’ portfolio and remains a rehabilitation effort.

[…]

Some believe even the most deft investor can’t keep the system solvent over the long term. But his supporters said he’s up to the task.

Former state Treasurer and Democratic Party Chairman Phil Angelides called Eliopoulos, whom he mentored, a methodical thinker and steady manager.

“He’s not threatened by having good, strong people around him,” Angelides said.

[…]

His lack of stock-and-bond experience may matter less than his ability to manage the massive investment operation that includes 400 in-house staffers and dozens of highly paid consultants and advisors, said investment professionals.

“It’s perfectly possible to be a very effective leader even if you don’t have all the experience in the weeds,” said Michael Rosen, a principal at Angeles Investment Advisors, which advises institutional investors.

Read the whole profile here.

Photo by rocor via Flickr CC License

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