Is California's pension plan skirting emerging money managers?

Despite being the test ground for every other social experiment in America, elected officials are accusing California - and its public pension plan, the largest in the country - of shirking its social responsibilities in its investments.

According to Reuters, the $244 billion California Public Employees Retirement System has been accused of purposely avoiding new and emerging money managers - investment firms often managed by women and minorities - and instead going with older, more mainstream firms. And still losing money in the process, State Senator Curren Price Jr. added.

Joe Dear, chief investment officer for the CALPERS fund, countered that the system he oversees does in fact maintain a strong commitment to emerging and diverse investment manager strategies, but conceded that the fund's managers, despite their age, stripe or color, have all been doing poorly in recent years.

"CALPERS' emerging managers have underperformed their respective asset classes in almost all circumstances," he wrote. "At the end of the day, what matters most is the risk-adjusted return."

Dear's own data suggests that emerging manager returns in private equity over the last year were 12.3 percent, versus 20.0 percent for private equity overall; over a five-year period, emerging managers garnered 3.9 percent, versus 7.2 percent for private equity programs overall.

Critics cited the fund's recent decision to use Credit Suisse to manage a $100 million private equity fund  and the August announcement of a gradual end to a $1 billion private investment fund designated to invest in California companies based in the state's most economically hard-struck areas. CALPERS defended the decision saying the program, which dates back to 2001, did not meet investment expectations.

CALPERS notes that it still has made $1 billion in commitments to emerging market managers, mostly in its private equity portfolio, since 2009, about 18 percent of its private equity stake - the same share it had before the financial crisis. 

Overall investments in emerging managers total $9.7 billion, about 11 percent of all of its externally managed capital.

The system recently announced it would hold a series of workshops for new emerging market managers and work differently to interact with them in the future.


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