California Pension Looks to Ontario Experience to Reduce Outside Managers
The California State Teachers’ Retirement System, exploring changes in hiring and pay to reduce its dependence on external managers, is looking to one of Canada’s biggest public retirement funds for advice.
The second-largest U.S. public pension, which manages a third of its $152.7 billion portfolio in-house, is consulting the Ontario Municipal Employees Retirement System (OMERS), which self- manages about 85 percent of its C$55.1 billion ($55.1 billion) portfolio.
The California fund posted a 2.3 percent gain on investments in 2011, reducing its ability to meet long-term obligations to 856,000 members and their families, while the Ontario fund reported a return on assets of about 3.2 percent. Following the Ontario plan’s model, in which investment officers are treated as employees of a corporation, might give Calstrs more flexibility to respond to market conditions, spokesman Ricardo Duran said.
“They act more like a private investment firm,” he said in a telephone interview. “They have the ability to be more flexible with their hiring.”
The Toronto-based fund, known as Omers, oversees benefits for about 420,000 retired and active government workers in Canada’s most-populous province. Rick Miller, chairman of the Omers Administration Corp.’s 14-member board, is scheduled to meet with the California fund’s board March 1 in Glendale.
As of June 30, Calstrs managed 33 percent of its portfolio internally, up from 30 percent a year earlier, according to its annual reports to the state Legislature.
Omers ultimately plans to manage 90 percent of its portfolio in-house, said a spokesman, John Pierce. In 2010, the fund realized $25 in earnings for every dollar spent on its investment staff, compared with $10 for every dollar on outside managers, Pierce said by telephone.
“Omers is independent from government,” Pierce said. “Our investment team has 100 percent skin in the game. They’re not working for anyone else.”
U.S. public pensions operate under a variety of models, said Keith Brainard, research director at the National Association of State Retirement Administrators. Several systems are looking to Canadian-style or nongovernment structures, he said by telephone.
“One underlying issue is that it’s not unusual for a pension system to have trouble hiring and retaining good people,” Brainard said.
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