The California Public Employees' Retirement System has chosen five global equity long/short managers from its “spring-fed” pool to help manage stocks that are currently in its passively managed index fund. The managers within the pool are allowed to short-sell up to 35% of their total allocations and then go up to 135% on the long side.
The firms picked by CalPERS include: Analytic Investors; First Quadrant; Goldman Sachs Asset Management; Quantitative Management Associates and State Street Global Advisors. CalPERS will reallocate assets from its passively managed index fund accounts to pool managers as early as the first quarter of 2007.
"This approach is another way we can diversify and improve the efficiency of our portfolios by using sophisticated managers who assess over-valued as well as under-valued stocks," stated Charles Valdes, Chair of the CalPERS investment committee. "We think there’s a potential multibillion dollar opportunity here as we pursue this strategy. We will start small and ramp up our commitment if the strategy generates the risk-adjusted returns we anticipate."
The spring-fed pool system was born out of a need for efficiency and flexibility, said Clark McKinley, a spokesman. “Rather than making separate allocations to different funds and having to go to the board every time we do that, we found that we can get a lot more flexibility if we created a pool of managers and have the delegated authority to allocate to them resources whenever we wish,” he said. “We can bring others into the pool over time and this gives us tremendous flexibility and we can make allocations when the opportunities arise. We have a bout a dozen or so spring-fed pools across our asset classes.”
CalPERS, in February, issued an RFP for U.S. equity long/short managers for its pool and received 29 total proposals, which were whittled down to a short list of 11 managers. CalPERS’s staff members and its consultant Wilshire Associates recommended the final five managers to the investment committee.
CalPERS currently manages assets totaling more than $225 billion and provides retirement and health benefits to approximately 1.5 million State and local public employees, retirees, and their families.