CalPERS outlined plans to increase investments with emerging and diverse managers over the next five years. The plan focuses on six work streams around portfolio management and four around external outreach. Currently, CalPERS has $10 billion invested with over 300 emerging managers, representing 12% of externally managed assets. Another $3 billion is invested with over 80 diverse managers. The plan aims to improve performance tracking, increase commitments to emerging manager programs, and strengthen relationships with stakeholder organizations.
1. CalPERS Emerging and Diverse
Manager Forum
CalPERS Investment Overview and Plans for Emerging
Managers
Joe Dear
Chief Investment Officer
2. 1
CalPERS Investment Office Strategic Priorities
Performance: Achieve our target rate of return without exposing
the fund to the undue risk of major drawdown
Plumbing: Develop and implement the systems, controls, and
processes necessary to assure the integrity of operations
People: Ensure that we have the right number of people with the
right skills to enable investment performance improvement and
control of operations
3. 2
Our Strategic Priorities—Investment Office Roadmap
Investment Performance • Deliver consistent risk-adjusted investment returns.
Capital Allocation • Implement a risk-based, dynamic asset allocation approach.
Performance
Investment Risk • Establish a comprehensive portfolio risk management system and
Management practices to measure, manage and communicate investment risks.
• Enhance cost effectiveness of the investment program to improve
Cost Effectiveness net returns on assets.
• Design, develop and implement a robust, integrated operating
Organization, Systems model that minimizes complexity, improves transparency and
Plumbing strengthens processes, systems, governance and controls of the
and Controls Investment Office.
• Enhance the ability of the Investment Office to recruit, develop and
People Talent Management retain a high skilled, diverse and motivated team to ensure
success.
4. 3
Asset Allocation: As Of September 30, 2012
Absolute Return Strategy,
2.1%
Real Estate, 8.9% Liquidity, 4.3%
Inflation, 3.1%
Forestland/ Infrastructure,
1.3%
Public Equity, 49.1%
Private Equity, 13.5%
Income, 17.8%
5. 4
Annual Fund Performance vs. Benchmarks
16.0%
14.0% 13.5% 13.4%
12.0%
9.2% 9.3% 8.6%
10.0% 8.4%
7.7%
8.0%
6.0% 4.3% 3.6%
4.0% 2.9%
2.0% 0.4%
0.0%
Fiscal Year 1 Year 3 Year 5 Year 10 Year Since Inception
To Date FY FY FY FY
Sept 2012 Total Fund Returns Benchmark (CalPERS Policy Index)
6. 5
CalPERS Total Fund Returns by Asset Class
25%
20%
15%
10%
5%
0%
1 Year 3 Year 5 Year 10 Year
-5%
-10%
-15%
Absolute Return Strategies Global Equity Fixed Income Real Assets Private Equity
7. CalPERS Emerging and Diverse
Manager Forum
CalPERS Investment Overview and Plans for Emerging
Managers
Joe Dear
Chief Investment Officer
8. CalPERS Emerging Manager and Diverse
Manager Forum
CalPERS Five Year Emerging Manager Plan
Laurie Weir
Senior Portfolio Manager
9. Introduction
• This presentation will cover:
- Objectives of Emerging Manager Programs
- CalPERS Emerging Manager Five-Year Plan
- EM Definitions, Exposure, and Performance
- Diversity and Inclusion Initiatives
10. Objectives of Emerging Manager Programs
• Generate appropriate risk adjusted investment returns by identifying
early stage funds with potential for strong investment performance
• Access to investment opportunities that may otherwise be
overlooked
• Cultivate the next generation of external portfolio management talent
11. Emerging Manager Five-Year Plan
• Legislation requires CalPERS and CalSTRS to:
- Commence a five-year plan for emerging manager participation
- Submit annual progress reports to the Legislature
- Define “emerging investment manager”
• CalPERS Plan outlines six work streams organized under Portfolio
Management and four work streams organized under External
Outreach
12. Work Streams in the Five-Year Plan
• The Portfolio Management EM Program work streams include:
- Track and report the performance, cost and diversity of EM strategies
- Global Equity’s review of their Manager Development and Fund of Funds EM
programs
- Track and report progress of Private Equity’s $100 million and Real Estate’s
$200 million recent commitments to EM programs
- Establish criteria for transitioning EMs to direct investment mandates with
CalPERS
- Establish criteria for new capital to EM programs
- Benchmark CalPERS EM program design and implementation against peers
13. Work Streams in the Five-Year Plan (Cont’d)
• The External Outreach EM Program work streams include:
- Improve communication regarding investment proposal submittal
and tracking
- Improve EM information on CalPERS website
- Host and participate in workshops, webinars and conferences
- Improve communication and strengthen relationships with
stakeholder organizations
14. Emerging Manager Definitions
Emerging Manager definitions are established by each asset class. Programs may seek emerging
managers domestically or globally. All program reporting will distinguish between domestic US and
international emerging manager exposure.
Global Equity ARS Global Fixed Income Private Equity Real Assets
Asset Class Parameters
Fund of Funds Fund of Funds Direct Direct Fund of Funds Mentoring Manager
Emerging Manager Emerging Manager Fund Fund of Emerging Hedge Real Estate Emerging
None None Emerging Domestic Private Equity Managers
Program Name of Funds Funds Managers
Real Estate Separate
Long Only - Publicly Traded Private Equity - Buyout and
Investment Strategy Securities
Hedge Funds All Private Equity
Special Situations
Venture Capital Accounts and Commingled
Funds
No No No No
Product Size Requirement
< $1B
Requirement Requirement
< $1B < $500M
Requirement
No No No
Firm AUM < $2B < $2B < $2B
Requirement Requirement Requirement
< $1B
First, Second, or Third
No No No First or Second Institutional First or Second Institutional First or Second Institutional
Length of Track Record Requirement Requirement Requirement Fund Fund Fund
Separate Account or
Institutional Fund
No No No No Domestic Domestic
Geographic Focus Requirement Requirement Requirement Requirement US US
Urban California
15. Current Emerging Manager Exposure
• CalPERS has approximately $10 billion currently invested with
emerging managers
• This investment with over 300 emerging managers totals approximately
12% of CalPERS externally managed net asset value
• CalPERS has committed $900 million to emerging manager programs
across several asset classes over the past three years
16. Diverse Manager Exposure
• CalPERS has invested over $3 billion or approximately 4% of
externally managed NAV with over 80 diverse investment managers
• Exposure through both EM programs and direct relationships
• 2.6% of externally managed NAV invested with majority minority-
owned firms
• 1.2% of externally managed NAV invested with majority woman-
owned firms
17. Definition of Diverse External Manager
• Diverse Investment Management Business
- For-profit enterprise, regardless of size
- Physically headquartered in U.S. or trust territories
- Owned and operated by women and/or minority group members
• Minority Group Members
- U.S. citizens and permanent residents
- African American, Asian American, Hispanic American or Native
American based on 2010 Census classifications
18. Definition of Diverse External Manager
• At time of investment, CalPERS Diverse Investment Management
Business is:
- Substantially Diverse: 25 to 49% minority group and/or women-
owned
- Majority Diverse: 50% or greater minority group and/or women-
owned
19. Definition of Diverse External Manager
• Private Asset Classes – Private Equity and Real Estate
- Minority group members and/or women’s participation in carried
interest in each fund managed by business
• Public Asset Classes – Global Equity, Global Fixed Income, Hedge
Funds/Absolute Return Strategies
- Minority group members and/or women's participation in the
investment advisory for each fund managed by business.
20. Work Streams in Diversity and Inclusion Initiatives
• The Diversity and Inclusion work streams in CalPERS Investment
Office include:
- Survey external managers and consultants for diversity in key
competency positions
- Track and report CalPERS net asset value by asset class
managed by minority and women-owned external managers
- Track and report the number of investment proposals submitted to
each asset class by minority and women-owned firms
21. Conclusion
• The ten work streams established in the Plan are a significant
commitment of resources to ensure that CalPERS EM programs
advance investment objectives
• The Plan provides a road map to build on our successes and
identify opportunities for improvement in the future
22. CalPERS Emerging Manager and Diverse
Manager Forum
Joe Dear Laurie Weir
Chief Investment Officer Senior Portfolio Manager