US - CalPERS, the giant $143bn California Public Employee's Retirement System, is considering putting all of its externally managed US growth equities mandates - worth a combined $3.8bn - out to tender.
Presently, CalPERS has five US growth managers. Brown Capital runs $697m; Geewax Terker, $668m; Goldman Sachs, $938.2m; Putnam Investments, $810.5m; and Oak Associates, $695.1m. Next week, the fund's internal investment staff will propose that all of the above managers mandates be put out to tender as, with the exception of Oak, all of the managers failed to add value above their benchmark from the period May 1998 through October 2001.
The fund is disappointed with the results from its growth managers, especially since three of those managers have ranked below the large cap growth median manager for the majority of the last three years.
CalPERS is also concerned that the multiple manager structure that it employs for diversification purposes has been negated by the fact that all five managers have focused their investments in large cap securities. As of September 30, 46% of CalPERS' assets in the growth portfolio reside in the top twenty most heavily weighted stocks.
Whilst CalPERS investment staff believe that putting all five managers’ mandates out to tender, its consultant Wilshire Associates has suggested a different course of action. Wilshire agrees that the portfolio suffers from excessive overlap, but believes that terminating one of the five managers could suffice. Additionally, Wilshire has suggested that the fund look at alternative weighting schemes of the remaining managers to minimise tracking error and maximise return.
Additionally, the fund has shortlisted seven firms to run between $1bn and $1.5bn in emerging markets equities. The candidates are Bernstein Investment Management & Research; Capital Guardian Trust; Grantham, Mayo, Van Otterloo; Foreign & Colonial Emerging Markets; Dimensional Fund Advisors; Rexiter Capital Management (a subsidiary of State Street Global Advisors); and Genesis Asset Managers.
CalPERS is also set to appoint five managers to run up to $1.5bn in high yield. The selected managers are Highland Capital Management, Shenkman Capital Management, ING Ghent Asset Management, PIMCO and Nomura. CalPERS investment committee is scheduled to approve the five managers at next weeks meeting.
By Geoffrey Ho
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