Investor Base: Strange bedfellows

In April, the $180 billion California State Teachers’ Retirement System hired Meketa Investment Group as a co-consultant to work alongside Pension Consulting Alliance, which had been CalSTRS’ sole general investment consultant since 1989.

The decision to hire two consultants instead of one is intended to improve research and allow for “a valuable second opinion” on investment decisions and policies, according to Sharon Hendricks, CalSTRS’ investment committee vice-chair.

As co-consultant, Meketa will be responsible for participating in two major projects per year, as well as monitoring and commenting on CalSTRS’ strategic asset allocation. The co-consultant will also be expected to comment at investment committee meetings should the firm have a different opinion to that of PCA.

Generally speaking, duties will be divided between PCA and Meketa. But both firms will work on the tri-annual asset allocation study “because it is the most important and profound investment decision for the Committee,” CalSTRS chief investment officer Christopher Ailman said during a recent board meeting.

For CalSTRS, the addition of Meketa means trying to turn two fierce competitors into collaborators. Both PCA and Meketa vied for the position of CalSTRS’ specific private equity consultant in 2012, with PCA winning that battle. CalSTRS has alternated private equity consultants frequently over the past two decades, re-bidding the contract every five years.

Though PCA prevailed in 2012, the consultant has not always been a top pick by California’s public pensions. In 2011, the Los Angeles City Employees’ Retirement System terminated its relationship with PCA and transferred its mandate for consultancy services to Hamilton Lane.

Massachusetts-based consulting firm Meketa has an impressive pedigree that dates back more than three decades. In 2009, it beat out PCA and Wilshire Consulting to become the first ever lead infrastructure investment consultant for the California Public Employees’ Retirement System. Founder James Meketa is a former consultant to the endowment of Harvard University.

With any luck, Meketa and PCA will be able to set aside their competitive tensions. But it remains to be seen whether the combination of the two will turn out to be worth more than the sum of its parts.