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New master custody services part of CalPERS’ master plan

Janine Guillot

Requests For Proposals (RFPs) for a master custodian and a replacement risk management system are priorities for CalPERS as it undertakes a systems and controls strategic initiative this financial year.

The current master custody contract, with State Street, was signed in 2006 for a three-year term with two one-year options to extend.

The new contract, with a start date of April next year, will look to include the defined contribution plan’s custody services, currently under a separate contract, and accommodate the needs of the fund’s complex global portfolio and sophisticated internal trading operations.

The plans form part of the investment office strategic roadmap, which aims to address the increased complexity and reduce investment office operating risks through improved operational systems and controls.

Other initiatives include determining the combined investment office and fiscal services division requirements for an accounting platform, and implementing a solution for internal equity portfolio construction.

In a presentation to the investment committee this week Janine Guillot, who was appointed chief operating investment officer in March, outlined that the rapid growth and increased complexity in the fund’s portfolios had resulted in increased investment and operating risk, and that reducing risk and improving organisational systems and controls was a strategic priority.

About 61 per cent of CalPERS’ total fund is managed internally, and those strategies are becoming more complex. In addition 22 per cent of the fund is invested in private asset classes, requiring the ability to manage hundreds of external partners, she said.

According to the presentation, CalPERS has already made some progress to improve systems including a new contract database and contract management, budget and tracking processes; enhanced risk reporting including improved concentration and leverage reporting, and a comprehensive review and simplification of investment policies.

But she also said there was significant work ahead to strengthen the “end-to-end” operating platform

She reports to chief investment officer, Joe Dear, and is tasked with working with senior staff to implement strategies for the system’s real estate, alternative investment and public market portfolios, including the development of portfolio trade and management systems.

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