CalPERS Keeps Alliance as Manager of $1.4 Billion

Alliance Capital Management Holding will keep its contract to manage $1.4 billion for the California Public Employees’ Retirement System, the largest U.S. pension fund, even as the mutual fund company faces probes into its trading practices.

CalPERS, which oversees more than $155 billion, decided at a meeting of its investment committee to put Alliance on its “watch list” instead of firing the company, Brad Pacheco, a spokesman for the pension fund, said Monday.

“Based on the information we have available to us today, we believe it is appropriate to hold off on further action including possible termination until later,” Sean Harrigan, president of CalPERS, said in a statement.

Alliance has been fighting to retain pension fund clients since the New York-based company said it had uncovered agreements that allowed some investors to make frequent short-term trades in its mutual funds in return for making longer-term investments in others.

Alliance Chief Executive Lewis Sanders, who attended the CalPERS meeting, has had success retaining public pension fund clients. North Carolina and Oregon last week decided to keep Alliance as manager of a combined $10.3 billion.

State and federal regulators are investigating the company. The Times reported last week that Alliance had agreed to pay $250 million as part of a settlement, still being negotiated, of allegations of improper trading. The penalty would be the largest against a U.S. money manager.

Alliance’s placement on the watch list means its contract may be reviewed again by CalPERS. A month ago, CalPERS decided to pull $1.2 billion from Putnam Investments, the first U.S. fund firm to be charged with fraud by regulators.