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CalPERS Looks to Trim External Managers

The nation’s largest public pension fund is trimming the number of investment firms it works with by half in an effort to save money, according to a published report.

The $305 billion California Public Employees’ Retirement System, or CalPERS, plans to inform its investment board next week of its plans to reduce the number of direct relationships it has with private-equity, real-estate and other external funds to about 100 from 212, according to The Wall Street Journal, (subscription required) citing Chief Investment Officer Ted Eliopoulos.

According to the report, the pullback would take place over the next five years. It is expected to save CalPERS, which paid $1.6 billion to external fund managers last year, hundreds of millions of dollars in management fees.

The cutback won’t fundamentally change CalPERS’ investment strategy or the percentage of assets managed in-house versus externally, according to the report. The remaining fund managers will simply get a bigger pool of funds, ranging from $350 million to more than $1 billion.

As recently as 2007, CalPERS had about 300 external managers, according to the Journal. As for the new roster, the biggest cuts are expected to occur in CalPERS’ private-equity portfolio, where the number of private-equity managers will slim to about 30 from roughly 100.

Eliopoulos, who became CalPERS’ top investment official last September after helping the pension fund recover from severe losses sustained during the 2008 financial crisis as head of its real-estate portfolio, notably shed a $4 billion investment in hedge funds after taking the top slot as part of an ongoing effort to reduce complexity and costs in CalPers’ investment program.