CalPERS to Increase External Management Budget by $145.6 Million

Most of the new fees will be allocated to private equity and real estate.

The California Public Employees’ Retirement System’s Finance & Administration Committee voted to increase the fund’s total operating budget by $176 million for fiscal year 2023. This 9.3% increase in expenses comes after the pension fund projected a surplus of $39 million for fiscal year 2022.

“There was a large increase year-over-year budgetary-wise that’s almost exclusively oriented to what the way we forecast our investment fees as opposed to anything operational,” said Michael Cohen, chief financial officer of CalPERS, at their finance committee meeting on Monday.

The projected new investment fees of $145.6 million account for 83% of the total budget increase. Within that, private equity saw the biggest increase in fees.

“In dollar terms, the largest increases are resulting from the private assets,” said Matt Flynn, leader of CalPERS’ investment services division, at the board meeting. “If you recall, part of the strategic asset allocation that this board adopted has meaningful increases to allocation to private debt as a new allocation to private equity and to real assets.”

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CalPERS increased its allotment to private equity in December to 13% from 8%. It also created a new strategic asset class for private debt that is allotted 5% of the portfolio. Flynn said at the meeting that CalPERS currently does not have the capacity to internally manage the allocation to private equity, which is why the additional fees will be necessary.

“That’s an organizational construct that we don’t have the ability to scale on an internal basis,” said Flynn.

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