CalPERS to adopt new consultant policy

The $236bn pension is planning to ban investment consultants from also acting as managers for the pension fund.

The California Public Employees’ Retirement System, the largest public pension in the US with $236 billion in assets, is moving forward with a plan to ban investment consultants from also working as money managers for the pension’s investments.

“The intent of the policy is to eliminate any possible conflict of interest, whereby consultants that advise us on policy also make investment recommendations to the CalPERS board and investment office staff,” said a CalPERS spokesman.

Last year CalPERS ended its long relationship with Pacific Corporate Group, which provided both investment advisory services and also ran funds into which CalPERS committed capital. PCG has faced a number of issues over the past few years.

The new policy would prohibit the pension from entering into that type of relationship again. The policy also would apply to consultants that advise CalPERS on the alternatives sector, including Wilshire Associates and Pension Consulting Alliance. It should be noted that PCA does not engage in investment management activities on behalf of any of its clients.

The consultant policy is one of a number of recommendations made by the law firm of Steptoe & Johnson that CalPERS has reviewed, following a special review of placement fees paid by CalPERS’ investment managers that was launched last year. “CalPERS has been developing the proposed policy change for some time,” the sspokesman said.

The consultant policy is awaiting action by the investment committee, comprised of all 13 board members. The committee acts on recommendations of the investment policy subcommittee.

As such, final action isn’t expected to happen until August after a final review of the proposed policy changes by the subcommittee, which next meets in mid-June. The board holds no regular meetings of any of its committees in July, said the spokesman.

CalPERS has implemented a number of recommendations presented by Steptoe, including creating a risk management office and the position of chief risk officer; banning gifts to pension employees; creating an ethics hotline; and establishing rules for communications between board members and staff members about investment proposals.

Steptoe also recommended last year that the pension “insist that nearly all fees it pays to external managers be incentive fees based on successfully investing CalPERS' assets and not in management or other fees”. Also, fees should be documented in a “transparent and straightforward” manner.