California Pension Paid $1.2 Billion to Manage Portfolio

The California Public Employees’ Retirement System, the largest U.S. pension, paid Wall Street firms almost $1.2 billion last fiscal year to manage investments, up 20 percent from a year earlier.

Calpers said fees paid to external firms for performance more than doubled in the year that ended June 30 to $377.6 million, up from $165 million the previous year, according to a report released yesterday. Base fees declined 2 percent to $790.5 million. The fund had $285.8 billion under management as of April 14.

Calpers earned 13.2 percent last fiscal year, almost double the 7.5 percent it said it needs each year to cover the costs of benefits promised to retirees. After losing almost a quarter of its value in 2009, the fund has made 3.5 percent in the five years that ended June 30.

The fund said total investment costs were about 53.5 basis points, the same as the previous year and up from 49.4 basis points in 2008, according to the report. Costs in 2013 were 5.8 basis points less than the fund’s benchmark, Calpers said. The costs were higher over five years, the fund said, because it increased its allocation of hedge funds and private equity. A basis point is 0.01 percentage point.

In all, the pension fund paid $1.3 billion, including consultants and administrative costs, for portfolio management. That’s up from $1.1 billion a year earlier. Calpers said the cost of investment operations declined by $80 million in the last two fiscal years.

The fund found savings by reducing external management fees and the number of consultants, as well as moving management functions from outside to within the organization, Calpers said.

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