Turmoil in financial markets and the need for greater transparency has triggered a review of the $174 billion CalPERS’ existing governance and risk management framework, with a new ad hoc committee tasked with reviewing the risk management framework across the entire business.
The project, which was approved by CalPERS board president Rob Feckner last week, is expected to take up to three years to complete, and will focus on the effectiveness of the organisation’s management of risk and the infrastructure for doing so.
This will include a review of the delegations of authority, policies and planning and operating procedures, decision-making protocols, monitoring and reporting procedures, organisational structure, and performance objectives and evaluations across the three key business lines of investments, health benefits and retirement administration.
The project is in conjunction with strategic and change management consulting firm, The Results Group, whose partner, Allen Goldstein, has worked with CalPERS on a number of strategic and policy planning processes.
The new risk management committee, which will meet for the first time on April 20, includes Feckner, as well as the current chairs of all other board committees: George Diehr, investment committee; Henry Jones, investment policy subcommittee; Priya Mathur, health benefits committee; Lou Moret, performance and compensation committee; Tony Oliveira, finance committee, and Kurato Shimada, benefits and program administration committee.
On the investments side the pension plan implemented the large-scale CalPERS Risk Management System, a comprehensive framework for measuring, monitoring, and managing risk, in 2007.
The system included the development of a central data repository for all investment information prior to entry into the system, which allowed every piece of portfolio and benchmark data, streamline modelling, reconciliation, and reporting processes to be captured.
The system provides for online, weekly risk reports to investment decision-makers, providing enhanced opportunities for additional investment returns.
The investment committee receives in-depth analysis of the risk impact to CalPERS total fund of proposed investment opportunities.
And the risk group publishes a monthly newsletter summarising changes in risk within the asset classes and the total fund, as well as reporting on special risk-related topics.
It is understood a review of the system will be included in the committee’s scope alongside reporting processes and procedures in the investment department.