Why Calpers needs to start acting more Canadian


18 Νοε 2013 (πριν από 4 χρόνια και 7 μήνες)

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Why Calpers needs to start acting more Canadian

California pension fund urged to index and internalize asset management, like
Canada’s have done for years


By JACQUELINE NELSON 26 March 2013 The Globe and Mail


There might be a way for the largest public pension fund in the United States
to improve returns and reduce costs. But it’s going to have to start acting like a
Canadian pension fund.


A consultant advised California Public Employees’
Retirement System t
o consider replacing some external active management
services with in
house passive indexing portfolios, according to U.S. trade paper
Pension & Investments.


By doing so, Calpers could reduce its investing and
staffing costs. It would also align its inves
tment strategy even closer to the
pension plans that pioneered the internal management, such as the Ontario
Teachers’ Pension Plan.


“If you want exposure to the equity markets in the
world, the best way to get that exposure is very cheaply,” said Keith
bachtsheer, director of the Rotman International Centre for Pension
Management at the University of Toronto, of which Calpers is a member.
“Traditional active management

why would you do that? It can’t possibly add
value,” he said, noting that internal m
anagement can cost up to 90 per cent


Calpers matched the S&P 500’s gain of 13 per cent in 2013

its best
performance since before the recession. Allan Emkin, a consultant with Pension
Consulting Alliance, found in his review that only 25 per cent o
f external mangers
are beating their benchmark indexes.


Trading costs eat into profits. Index
investing requires fewer resources and provides less
costly exposure to equity
markets, where Calpers has about half of its investments. It is an important
ion for a pension fund that manages more than $256
billion (U.S.) for 1.6
million public employees and retirees.


Teachers’ was the first pension fund in
Canada to turn to in
house management in the 1990s, introducing performance
based incentives to manage
rs. Teachers’, which has $117.1
billion in net assets,
prides itself on promoting internal talent, and it uses external management only
“to target investments that require local or specialized expertise that we have
strategically decided not to develop in


It is a model many others have
emulated. The Ontario Municipal Employees Retirement System managed about
88 per cent of its fund assets internally in 2012, and hopes to reach 95 per cent.
It has also been pushing more of its $60.8
billion in net a
ssets away from the
public markets toward private investment over the past few years.


Investment Management Corp. chief executive Leo de Bever has whittled
external management fees from $175
million in 2008 to $109.7
million, according
to its most

recent annual report. AIMCo’s clients include 26 pension, endowment
and government funds in Alberta.


Already, less than half of Calpers’ public
equity investments are controlled by external firms and managers. And Mr.
Ambachtsheer believes the pension fu
nd will continue to internalize through
tracking products, real estate and infrastructure.


But moving away from
external asset management can be a lengthy process and have costs of its own;
You need good people, and you have to pay them competitive
salaries. Pay has
increased at pension funds, but it’s hard for them to compete with the salaries
and bonuses at banks and other fund companies.


That’s one reason Mr.
Ambachtsheer says it will take some time for U.S. pension funds to fully adopt
the Canad
ian style of pension fund management.