California Public Employees’ Retirement System said in the agenda for its investment committee meeting next week that the resignation of its infrastructure consultant is an opportunity to reduce the “complexity and expense” of its consultants by aligning contract terms for infrastructure and real estate consultants.
The investment committee said that aligning consulting contracts between the asset classes could lead to a “consolidated real assets” request for proposals in 2022 that would cover real estate, infrastructure and forestland. It is reserving the option to award contracts to individual firms for each asset class.
One consultant told PERE that he had not heard of any peer investors changing a consultant’s mandate to real assets from individual asset classes. He also said it was difficult to determine whether there might be more such consolidation in the future.
The infrastructure consultant contract period expires on February 29 2020, but the investment committee recommended extending this to match the contract for real estate, which ends on March 31 2022.
StepStone has resigned as consultant to the US pension’s $3.7 billion infrastructure program, according to agenda materials for the meeting. The company’s contract began in March 2015. John Osborn, CalPERS’ spokesman, confirmed StepStone’s resignation but declined to comment further.
CalPERS must hire a new consultant before StepStone exits on September 30. StepStone will begin infrastructure consulting for another firm in October, according to the agenda.
StepStone declined to comment for this story.
The investment committee said it is weighing a few options for how to replace StepStone Group. First, CalPERS could issue a RFP to find a new consultant and hire an interim firm until a new contract is negotiated. However, the pension said this could be costly and disrupt investment processes.
Another option is to reach out to firms consulting CalPERS for other asset classes. The two it mentioned were Meketa Investment Group, which is currently consulting for private equity and previously was infrastructure consultant from 2010 to 2014, and Pension Consulting Alliance, CalPERS’ current real estate consultant.
PCA stepped down from consulting for CalPERS’ private equity portfolio in March for an undisclosed reason, according to meeting materials at the time. Meketa, which was consulting on a real assets project that was set to end in June, was appointed the private equity consultant until the end of PCA’s private equity contract, on June 30, 2020.
In April, CalPERS announced plans to manage a single portfolio made up of infrastructure, real estate and forestland assets, a program worth $36 billion. Its infrastructure portfolio amounts to 1.2 percent of CalPERS’ total assets. It returned a net 9.92 percent last year, compared with 7.6 percent returned by real estate.
– With additional reporting by Meghan Morris