Ted Eliopoulos (Art by Edward Kinsella)The California Public Employees’ Retirement System (CalPERS) has cut its asset management expenses over the last five years even as the portfolio grew in size, according to the fund.
CalPERS’ assets climbed from $181 billion in 2009 to a record-high $301 billion at the close of the 2014 fiscal year. During this period, the fund cut its annual ongoing investment expenses by roughly $90 million. That figure excludes performance fees, which vary greatly year to year.
The fund attributed its savings to bringing more management in-house, reducing reliance on consultants, and increasing its use of low-cost index strategies. Tracking the results of these changes has also been an area of focus for the public pension giant, according to Henry Jones, vice president of CalPERS’ board and chair of its investment committee.
“Understanding how costs impact the fund is an endeavor we have spent considerable time and resources on,” Jones said. “It’s encouraging to see positive results from our efforts.”
“Costs are a factor that you can’t lose sight of; you have to stay vigilant.” —CIO Ted EliopoulosManaging the $301 billion portfolio cost approximately $1.7 billion in the 2013-2014 fiscal year. External management fees accounted for 92% of that total.
CalPERS placed ahead of its peers in investment expenses, according to a report by benchmarking firm CEM, which rated it “cost-advantaged.”
The fund’s CIO Ted Eliopoulos remarked that the recognition from CEM along with CalPERS’ internal findings “tell us that we’re on the right path.” But, he cautioned, “costs are a factor that you can’t lose sight of; you have to stay vigilant.”
Eliopoulos now-famously killed CalPERS’ hedge fund program as one of his first moves as CIO, in part to reduce fees. In January, he followed this with an announcement that he aimed to cut the fund’s number of ongoing private equity relationships by two-thirds.
Related Content: After Hedge Funds, CalPERS Eyes PE Cuts; Wall Street, Prepare for a Political Bloodbath