June 18 (Bloomberg) -- The California Public Employees' Retirement System, the largest state pension fund in the U.S., plans to more than double the money it puts in so-called activist funds that push for corporate and management changes.

The board of the fund, known as Calpers, aims to put $12 billion with activist investors, up from about $5 billion invested now, Christy Wood, senior investment officer for global equities, told delegates today at the GAIM conference in Monaco.

The Sacramento-based pension fund's board today voted to increase its allocation into activists funds to 5 percent from 3 percent of its global equity holdings. The fund, with $245 billion in assets, also voted to increase how much it allocates to hedge funds to 5 percent from a maximum of 3 percent, or about $5 billion more.

``Global activism is on the rise,'' Wood said via a video link from California. ``Shareholders are increasingly taking an interest in what is happening in the companies they own.''

Activist funds have had high-profile success in getting companies to take steps to increase their share prices. London- based hedge fund TCI Fund Management LLP called in February for a breakup or sale of Amsterdam-based ABN Amro Holding NV before it acquiesced. Shares of the Dutch bank are up 47 percent this year.

The fund, led by Christopher Hohn, owned about 2 percent of ABN Amro before triggering a bidding war that pits Barclays Plc against a group led by Royal Bank of Scotland Group Plc. ``You don't need a large shareholding to effect change,'' Wood said.

Benefit Costs

Calpers is looking at generating greater returns as the cost of covering retirement and health-care benefits for public workers grows. In the past year, the fund's board agreed to invest in commodities for the first time, to let investment managers take short positions in U.S. stocks, to buy stocks in emerging markets such as China and India and to expand private- equity investments.

Calpers had just $1 billion in activist funds five years ago, Wood said. It started investing with activist funds in the late 1990s and has placed money with New York-based New Mountain Capital LLC and London-based Hermes Pensions Management Ltd.

The number of shareholder resolutions at U.S. companies increased 51 percent between 2000 and 2006, which means investors are taking a tougher stance with the companies, Wood said.

`Undemocratic'

Some European legislators have criticized activist investors, accusing them of using minority stakes to impose agendas. Dutch politicians had a hearing on activist funds in April.

``It's dangerous because people think what we do is undemocratic,'' said Dimitri Goulandris, partner at London-based Cycladic Capital LLP. The fund has reopened in response to investor demand and plans to double in size to $1 billion, he said.

Guy Wyser-Pratte, whose fund raised $400 million in the last 18 months, intends to press for consolidation in Europe's defense industry, with about 135 companies compared with five in the U.S.

His style is to publicly press for changes after purchasing stakes in target companies. He's not concerned that some people consider activist investors too hostile to management, he said.

``We shoot first, ask questions later,'' he said.

To contact the reporter on this story: Andrei Postelnicu in London at apostelnicu@bloomberg.net; David Clarke in Edinburgh at dclarke3@bloomberg.net.

Last Updated: June 18, 2007 15:48 EDT