CalPERS Fires External Equity Managers For Long-Term Underperformance

CalPERS, the largest pension system in the US, just took a scalpel to funds allocated to external equity managers.

In a major restructuring of its investment process, CalPERS slashed allocations to external equity managers from $33.6 million to $5.5 million. Only three out of 17 external managers survived the purge, according to an exclusive report by Chief Investment Officer.

Further, the pension fund restructured its emerging managers’ program, docking its allocation from $3.6 billion to just $500 million. Only one out of the five emerging managers stayed on.

CalPERS Chief Investment Officer Ben Meng supported the sweeping changes.

Firings due to underperformance

According to CIO, Meng has penalized long-term underperformance of the managers. The action follows from Meng’s preoccupation with the objective of CalPERS achieving its 7% assumed rate of return. Meng is also said to be concerned about the fund’s extent of underfunding, currently 30%.

CIO saw a memo in this regard. It said Meng was placing a “renewed focus on performance and our ability to achieve our 7% assumed rate.”

Further, the memo said: “Over the last five years, traditional managers have underperformed their benchmarks by 48 bps and emerging managers by 126 bps.”

The move also due to a long-term trend and cost savings

CalPERS has steadily reverted most of its corpus of $187 billion to in-house management over the last ten years.

According to the CEO, Marcie Frost returns generated by external equity managers have not contributed enough to achieving the fund’s 7% target.

Though underperformance of outsourced managers is the most likely and apparent cause, one bonus is the savings in costs.

According to Frost, the manager terminations will result in very significant savings in fees: $ 80 million from traditional equity managers and 20 million from emerging managers.

[Related Story: CalPERS allocates more than $3 billion to real estate  ]

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

  • This field is for validation purposes and should be left unchanged.

Alt Insights

January 29, 2020

Venture Capital: The Kobe in “Bryant Stibel & Co”

Venture Capital: The Kobe in “Bryant Stibel & Co”

Latest Alternative Investment News

Alternative Investments: Activists Will Get Busy Soon, Says Tim Melvin

As companies become more undervalued as the economy slows because of shutdown orders across the United States, I expect that the pace of activist activity to increase. We should see…
Private Equity: Active Triage Happening at KKR and Other Funds
April 2, 2020     News, Private Equity

KKR & Co (NYSE: KKR) has shelved a plan to sell Singapore-based Goodpack, a Singapore based shipping containers, and logistics services.  They had bids for the company that was said…
FinTech: Kyash Closes $45M Series C Funding
April 2, 2020     FinTech, News

Kyash, a Japanese fintech startup aspiring to be a leading challenger bank, gained $45 million in a Series C funding. The round was co-led by Greenspring Associates and Goodwater Capital,…
Liquid Alternatives: Investors Shovelled $677B Into Money Market Funds In Scramble to Safety
April 2, 2020     Liquid Alternatives, News

Investors set up a record-breaking first quarter this year for inflows into U.S. money market funds. These funds gained from the massive risk-off sentiment that prevailed as investors realized the…

Scroll to Top