CalPERS plans to move $1 billion of its externally-managed international fixed income portfolio in-house in the next 12 months, but it will require board approval to do so.
Meanwhile the external international fixed income managers – PIMCO, Baring Asset Management, Rogge Global Partners and Alliance Bernstein – have had their contracts extended for another year.
About 89 per cent of the $42 billion invested in fixed income assets is managed internally, and the team has a vision which includes insourcing where it “makes sense”. At the moment all of the international fixed income portfolio is externally managed.
CalPERS estimates the cost of internal management is only one to three basis points, as opposed to the cost of external management, which is 20 to 30 basis points.
The fixed income assets account for 19 per cent of the overall portfolio, and the majority of that, 17 per cent of the overall portfolio, is in domestic fixed income, with only 2 per cent in international.
The 38-member fixed income team led by senior investment officer, Curtis Ishii (pictured) also manages other programs representing $44.4 billion in assets, including inflation, affiliate funds (such as TIPS), liquidity, securities lending and currency overlay.
A key assumption of internal management is the ability to attract and retain investment professionals, and it is also a key initiative for the fund to set aside time and money to invest in staff development, as well as hire more internal staff.
In addition to internally managing $1 billion of international fixed income, the fixed income team has also prioritised in-sourcing short-term funds, primarily in the global equities and securities lending programs; and continuing to explore portable alpha opportunities.
It also plans to work with the corporate governance teams on a number of initiatives including working with the SEC to make changes to bond holders’ rights; and with government institutions on rating agency reform.
In a board presentation this week it was also outlined that the experience of the fixed income group will be drawn on for total fund initiatives including the construction of a total fund attribution system to supplement the one developed for global fixed income.
It will also work with asset allocation/risk management and investment servicing units to enhance investment operational infrastructure.
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