Cal pers emerging manager program 022613

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  • 1. CalPERS Emerging and Diverse Manager ForumCalPERS Investment Overview and Plans for Emerging Managers Joe Dear Chief Investment Officer
  • 2. 1CalPERS 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 andPlumbing strengthens processes, systems, governance and controls of the and Controls Investment Office. • Enhance the ability of the Investment Office to recruit, develop andPeople Talent Management retain a high skilled, diverse and motivated team to ensure success.
  • 4. 3Asset 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. 4Annual 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. 5CalPERS Total Fund Returns by Asset Class25%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 ForumCalPERS 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 AssetsAsset Class Parameters Fund of Funds Fund of Funds Direct Direct Fund of Funds Mentoring ManagerEmerging Manager Emerging Manager Fund Fund of Emerging Hedge Real Estate Emerging None None Emerging Domestic Private Equity ManagersProgram Name of Funds Funds Managers Real Estate Separate Long Only - Publicly Traded Private Equity - Buyout andInvestment Strategy Securities Hedge Funds All Private Equity Special Situations Venture Capital Accounts and Commingled Funds No No No NoProduct Size Requirement < $1B Requirement Requirement < $1B < $500M Requirement No No NoFirm 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 InstitutionalLength of Track Record Requirement Requirement Requirement Fund Fund Fund Separate Account or Institutional Fund No No No No Domestic DomesticGeographic 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 womens 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 ForumJoe Dear Laurie WeirChief Investment Officer Senior Portfolio Manager