CalPERS Terminates Goldman Contract
CalPERS has fired Goldman Sachs as a fund manager for $663 million in U.S. stock investments after the Wall Street firm under-performed a customized benchmark over four years, a spokesman for the biggest U.S. public pension fund said Wednesday.
The California Public Employees’ Retirement System, known as CalPERS, made the disclosure in an annual review of the $11.7 billion in U.S. stock investments it entrusts to 11 outside fund managers.
The decision to terminate the Goldman Sachs contract was made at an Aug. 19 meeting of the CalPERS investment board and came after the large-cap growth fund under-performed its benchmark starting with the boom market of 1998 and ending June 30.
CalPERS data showed Goldman Sachs fund managers lost 27.3% over that period, after fees.
By most measures, large-cap growth stocks led the market with double-digit returns in the mid-to late 1990s, only to be replaced by small-cap value stocks in 2000 and 2001.
“Goldman Sachs’ investment process did not show the ability to outperform the benchmark in any market environment,” CalPERS’ staff wrote in the fund’s annual review.
As a group, CalPERS’ outside fund managers lost 17.8% in the in the 12 months ended June 30, somewhat better than the 18% loss in the Standard & Poor’s 500 but worse than the 17.4% decline in the specially designed benchmark index the pension employs.
A representative for Goldman Sachs, whose New York office lost the CalPERS business, said the firm does not comment on client moves as a matter of policy.
Brad Pacheco, a spokesman for CalPERS, said the fund could not discuss when the assets that had been entrusted to Goldman would be shifted from the firm.
He said they typically would be returned to an index-tracking fund.
But Goldman Sachs Asset Management, based in Tampa, Fla., remains a CalPERS fund manager for a different portfolio. Goldman Sachs Asset won that contract, along with Franklin Advisors, in May.
CalPERS’ investment committee approved the moves in May as part of a effort to increase its exposure to better-performing small-cap and mid-cap stocks.
Staff at CalPERS also recommended that the pension fund’s investment committee renew the contracts for the remaining managers for one year. Those contracts allow for a 30-day notice of termination.
Slumping equity markets hit the pension fund’s overall portfolio, which fell 5.9% in the last fiscal year from a peak of $172 billion two years earlier.
The pension fund’s staff also recommended that CalPERS renew the contracts with all 15 of its international equity managers for a year, who together oversee a portfolio of about $8.5 billion.
While these assets declined 7.7% over the last fiscal year, the international money managers still beat the benchmark by 1.1 percentage points, CalPERS said.
