CalPERS to Boost ‘Active’ Management

The nation’s largest public pension fund is hoping to boost its chances of beating the stock market averages.

The $110-billion-asset California Public Employees’ Retirement System said Monday that it will revamp management of its U.S. stock portfolio, raising the portion that is “actively” managed.

Currently, CalPERS said, about 84% of its domestic equities--about $39.3 billion--is passively managed internally, meaning that portion is invested to simply replicate the performance of blue-chip stocks overall.

The other 13% of the U.S. portfolio is actively managed by external managers with whom CalPERS contracts.

Under the new structure, as much as 20% of the portfolio will be actively managed, CalPERS said, and it will develop an in-house program to direct some of that active portfolio itself.

The fund also said it is changing the way it contracts with external managers and revamping its pay-for-performance fee schedule.

“When a manager performs well, the firm will be compensated. When performance lags, CalPERS will pay a lower fee,” said Charles Valdes, chairman of CalPERS’ investment committee.

Monday’s actions “will help us capture significant returns in a market full of opportunity at minimum risk,” Valdes said. “We’re maintaining our passive portfolios as a sound foundation, seeking aggressive equity managers and adding a specialized investment portfolio to control risk.”

Analysts noted that by dedicating more of its portfolio to active management, CalPERS could in fact beat the market return--but at the same time the fund takes the risk of underperforming.

CalPERS provides benefits to more than 1 million current and former state workers and their families.