US - Pension funds are actively monitoring CalPERS's plan to pay fund managers on a performance-only basis in a move that could potentially shake up the industry.
The plan was presented to the CalPERS Investment Committee last month as part of a proposed restructuring of the $1bn global equity portfolio.
Christianna Wood, senior investment officer at the fund, told Global Pensions in an exclusive interview: “CalPERS is considering (..) changing the compensation of external managers from the present practice of management fees plus performance incentives to performance-only. Our objective is to reward managers only for generating alpha, but not beta that CalPERS internal managers could produce.”
Historically, CalPERS has paid external managers fees pegged to the amount of the retirement system’s assets.
A number of other large pension funds have taken notice of CalPERS's decision.
A spokeswoman for CalSTRS said: “Of course, we would immediately seek this type of fee structure as well. While our management costs are among the lowest in our peer group, we would welcome the opportunity to cut costs even more.
“The balance would be in rewarding higher performance while keeping within prudent levels of risk.”
Meanwhile, in Europe, a spokesperson for Dutch pension fund PGGM, stated: “As with all developments in the industry, we take this into account in case of possible reconsideration of our fee structure for fund managers in the future.”
Mikko Mursula, head of listed securities at Finland’s Ilmarinen, said the fund was actively monitoring the issue, but warned if funds were moving towards a performance fee structure, investors must be aware of world benchmark selection processes, as well as the investment guidelines and restrictions given to managers.
Richard McIndoe, head of pensions at Scotland’s Strathclyde Pension Fund, said there was no reason to believe that current fee structures were ideal. However, McIndoe added asset managers would use their considerable power to resist any change.
The CalPERS board plans to take another look at the proposal in November, with the details expected to be worked out thereafter.
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