Ares agrees to cut $10m in fees for CalPERS

As part of the $200bn pension’s fee review, Ares Management as well as an activist investment fund have agreed to cut fees and not use placement agents when soliciting commitments from CalPERS.

Ares Management, the alternative asset management firm with roughly $37 billion under management, has agreed to cut $10 million in fees over five years for the California Public Employees’ Retirement System.

The $200 billion pension also reached an agreement with activist investment fund Relational Investors to cut $30 million in fees over five years.

Relational and Ares both agreed to not use a placement agent to solicit commitments from the pension. Ares has not used a placement agent to solicit commitments from CalPERS for the last seven years, an Ares spokesperson told PEO. The firm used a placement agent only once in connection with CalPERS, for its debut fund in 2003, the spokesperson said.

“[The agreement] reaffirms one of Ares’ longstanding goals – to ensure increased transparency in fund raising determinations and lower fees in order to build public confidence in our industry,” the Ares spokesperson said.

The agreement with Ares is part of CalPERS’ long-term review of fees it pays to its investment managers that started last year. Prior to the agreement with Ares, CalPERS had reached agreements with 50 investment managers to cut a total of $99 million in fees. The fee breaks came from 17 private equity firms, 13 real estate managers, 10 hedge fund managers, 11 global equities managers and two fixed income managers.

The $200 billion pension first reached an agreement with Apollo Management to cut $125 million over five years in fees in accounts the firm manages exclusively for CalPERS.

The pension has had a relationship with Ares since 2003, when it committed $100 million to the first Ares Corporate Opportunities Fund. Fund I has an internal rate of return of 15.5 percent, and a return multiple of 1.50x. Fund II, to which CalPERS committed $200 million in 2006, has a 7.5 percent IRR and a 1.2x return multiple. CalPERS committed $400 million to Ares Fund III in 2008. The third fund has a 14.2 percent IRR and a 1.20x return multiple.