US - The $151bn California Public Employees' Retirement System (CalPERS) has placed Merrill Lynch on its watchlist due to personnel changes at the fund manager.
Currently, Merrill Lynch Asset Management (MLAM) runs a $1.08bn international fixed income brief for the fund. The move by CalPERS was prompted by the departure of several key figures at MLAM, and according to a spokesman the firm will remain on the watchlist until it has dealt with situation to its satisfaction.
MLAM, which is benchmarked against the Salomon Smith Barney Non-US World Government Bond Index (SBWGBI ex-US), has held the mandate since the fund started investing in the asset class in 1989.
Over the last 12 years, MLAM has outperformed its benchmark with annualised portfolio returns of 7.45%, compared to 7.02% for the SBWGBI ex-US. For the twelve period ending August 31, 2001, the firm posted a 3.94% return, compared to 3.67% for the benchmark. As a result, the spokesman said that MLAM's mandate is not presently in jeopardy.
CalPERS' international fixed income portfolio is worth around $6.9bn. MLAM's mandate forms 15.57% of the funds total investments in the asset class. Aside from MLAM, Baring Asset Management, Julius Baer, Bridgewater Associates, Rogge Global Partners, Wellington Management Company and Western Asset Management run international bond mandates for the fund.
The pension fund giant is also considering putting its $1bn member home loan programme out to tender. According to an internal CalPERS memo, the search is under consideration as it has been some time since it was last put out to tender. Currently, First Nationwide manages the programme, which offers residential mortgages to qualified CalPERS members, who use their retirement assets as collateral.
With the assistance of PriceWaterhouseCoopers Consulting, CalPERS has started to put together a request for proposal (RFP). If the fund's investment committee approves, the search will begin in late January / early February with an appointment expected by the start of July.
Finally, three firms have been selected to run the fund's $150m affordable multi-family housing program. Casden Properties has been awarded $70m to form a mixed-income housing-development fund, whilst $50m was allocated to a joint venture by three firms that will invest in mixed-income, tax-exempt bond-financed projects. The three firms involved are Klein Financial, Steadfast Properties and Development, and the Paramount Companies.
The final award, $30m to The Related Companies, is dependant upon further research into the firm's investment strategy. If CalPERS eventually decides against awarding the mandate to Related, the remaining money will be split between the other managers. Related's strategy is under additional scrutiny by the fund as it believes that it is outside their traditional investment programme.
PCA/E&Y Kenneth Leventhal assisted CalPERS with the search.
By Geoffrey Ho
This week's edition of Professional Pensions is out now.
The government is in talks with the UK and Irish pensions regulators over how to protect members of cross-border schemes in the event of a no-deal Brexit.
The equalisation of guaranteed minimum pensions (GMPs) is at least two years away from being completed, and could take longer than four years for some schemes, a poll has found.
The Pensions Regulator will consider if schemes should be required to have professional trustees and assess the case for greater regulation of administrators and system providers, PP can reveal.