Almost $14 Billion Pulled From CalPERS Equity Managers

Author: Chief Investment Officer (ai-CIO) URL: https://www.ai-cio.com/news/almost-14-billion-pulled-calpers-equity-managers/ One-line: CalPERS terminated most of its external equity managers on long-term-underperformance grounds, reallocating to internal index strategies.

Key Highlights

• CalPERS CEO Marcie Frost disclosed in an Oct. 21 letter to pension system board members that CalPERS had terminated most of its external equity managers, slashing their allocation to $5.5 billion from $33.6 billion.
• The memo, which had not been publicly discussed, says the moves are necessary because of long-term underperformance. CalPERS CIO Ben Meng is putting a “renewed focus on performance and our ability to achieve our 7% assumed rate.”
• The pension refused to turn over a list of the terminated managers.
• When CalPERS was overfunded, before the financial crisis, subpar investment performance could be tolerated or investment staff could look the other way in the name of diversity.
• The $380 billion pension system, the largest in the U.S., has faced criticism going back more than a decade by some state legislators for not having enough diverse money managers on its roster.
• “Over the last five years, traditional managers have underperformed their benchmarks by 48 bps and emerging managers by 126 [bps],” the Frost memo says.

How it connects

• CalPERS — the $380B pension system at the center of the manager terminations.
• LP — manager-selection and underperformance dynamics at one of the largest LPs in the world.
• Marcie Frost — CalPERS CEO who authored the disclosure memo.
• Ben Meng — CalPERS CIO driving the renewed performance focus.
• Investment Returns — the fund’s 7% assumed rate of return motivating the reallocation.
• Contrary Capital — the diligence/sourcing log this clipping was filed within.