CalPERS says it trimmed fees to Wall Street

The California Public Employees’ Retirement System said investment costs for managing its massive portfolio shrank by $90 million in the last five years, and that costs are now below those of its peers.

CalPERS, the nation’s largest public pension fund, said that in the fiscal year ended last June 30, it spent $1.7 billion in management fees for its $304-billion portfolio, a decline of $17 million over the previous fiscal year and $90 million over the five-year period.

The overwhelming amount of costs -- 92% -- were paid to so-called external managers, generally big Wall Street firms and other large financial institutions.

CalPERS said the cost reductions, however, do not take into account profit-sharing fees, also known as performance fees. The fund said the fees were excluded because they “can be volatile,” fluctuating widely from year to year.

Wall Street fees have drawn increasing scrutiny from U.S. pension funds because high investment costs are widely seen as the main drag on returns for funds struggling to meet looming obligations to retirees.

CalPERS said it was 77% funded as of June 30.

In September, CalPERS’ chief investment officer, Ted Eliopoulos, announced the end of the fund’s $4-billion worth of investments in high-cost hedge funds. More recently, he said he hopes to reduce the cost and complexity of managing the fund’s private equity portfolio, now valued at about $29 billion.

CalPERS said the latest fee reductions were identified in an analysis by CEM Benchmarking Inc., a research and consulting firm in Toronto, as having lower costs than a benchmark figure derived from cost data at 14 large public pension funds.

Twitter: @deanstarkman