CalPERS cuts $99m in fees across asset classes

The $198bn pension has been negotiating with external managers for fee cuts, and has slashed an additional $99m in fees from managers including 17 private equity firms.

The California Public Employees’ Retirement System has 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. About $56 million of the total fee cuts came from hedge funds, a CalPERS spokesperson said.

CalPERS refused to disclose the specific names of the firms that agreed to the fee cuts.

“We anticipate that more savings will come as we continue to negotiate with external managers,” the spokesperson said.

CalPERS has been working with managers to lower fees since last year. The public pension, the largest in the US, has already reached an agreement with Apollo Management to cut $125 million over five years in fees in accounts the firm manages exclusively for CalPERS.

“If you look at the cost of operating a pension fund, the overwhelming majority of our expenses are investment management fees paid to private equity, hedge funds and real estate,” Joseph Dear, CalPERS chief investment officer, said at a conference in April.

The shift to more LP-friendly fees, in which “the LPs and GPs make money at the same time” will take time, and will get done “fund by fund”, Dear said.

“It’s the classic prisoner’s dilemma. Each of us knows individually we’re better off if we get terms and conditions but it’s possible for a highly qualified general partner to pick people off and say, ‘these are really the terms, take it or leave it’”, Dear said at the conference. “If [limited partners] stick together, you can overcome that, but if people defect then that bargaining leverage goes away.”