Home ListingDecember 14, 2015

CalPERS Pushes Ahead in Fight to Cut Costs

With savings of $217 million in the last fiscal year, America’s largest public pension looks ahead to becoming even more cost-efficient.

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The California Public Employees’ Retirement System (CalPERS) investment office said it will continue to focus on enhancing cost effectiveness and evaluating risk as part of its 2015-2017 roadmap.

The roadmap, presented at an investment committee meeting Monday, is part of CalPERS’ 2020 Vision—a five-year effort focused on “simplifying the investment portfolio, simplifying the organizational structure, focusing on risk cost and complexity, and improving the level of collaboration within the investment office,” said Chief Operating Investment Officer Wylie Tollette.

Already, CalPERS said it has made progress on cutting costs: The investment office saved $217 million in the 2014-2015 fiscal year, primarily through improved fee structures for real assets and private equity investments. These savings included $196 million of reduced ongoing fees and $21 million in one-time savings.

The roadmap also pushes for enhancing the pension’s capital allocation framework, improving its investment platform and controls, and continuing to integrate investment beliefs into the investment process, including environmental, social, and governance (ESG) considerations. CalPERS’ latest ESG effort was signing the Paris Pledge for Action, a commitment to support and implement the climate change agreement reached at COP21.

The ultimate goal, Tollette said, is to manage the investment portfolio in a “cost-effective, transparent, and risk-aware manner in order to generate returns to pay benefits.”

“The simplicity and clarity of that mission are very important,” he continued. “That’s what we are focused on doing.”

CalPERS’ roadmap includes 36 initiatives that are already in progress. Some, such as collecting and reporting private equity fee data, have already been implemented, while others are still in the development stages.

“One of the essential challenges of driving change is you have to repave the road while you’re driving on it,” Tollette said. “We believe we are effectively accomplishing that.”

In addition to improving fee structures, CalPERS said it has also made progress in fostering relationships with diverse portfolio managers. The pension also completed the initial printing of its carbon footprint and finished pricing and valuation procedures for all asset classes.

Looking further ahead, the $288 billion fund also outlined potential areas to focus on as part of a 20-year plan, including technology, business models, the market environment, physical location, and talent.

“At this point, we are really just trying to figure out exactly what questions to focus on for looking at something like the 20-year vision,” Tollette said. “None of us have a crystal ball of how the world might work.”