CalPERS Emerging and Diverse Manager Forum

Transcription

1 CalPERS Emerging and Diverse Manager Forum CalPERS Investment Overview and Plans for Emerging Managers Joe Dear Chief Investment Officer

2 1 CalPERS Investment Office Strategic Priorities Performance: Achieve our target rate of return without exposing the fund to the undue risk of major drawdown Plumbing: Develop and implement the systems, controls, and processes necessary to assure the integrity of operations People: Ensure that we have the right number of people with the right skills to enable investment performance improvement and control of operations

3 Our Strategic Priorities Investment Office Roadmap 2 Investment Performance Deliver consistent risk-adjusted investment returns. Performance Plumbing People Capital Allocation Investment Risk Management Cost Effectiveness Organization, Systems and Controls Talent Management Implement a risk-based, dynamic asset allocation approach. Establish a comprehensive portfolio risk management system and practices to measure, manage and communicate investment risks. Enhance cost effectiveness of the investment program to improve net returns on assets. Design, develop and implement a robust, integrated operating model that minimizes complexity, improves transparency and strengthens processes, systems, governance and controls of the Investment Office. Enhance the ability of the Investment Office to recruit, develop and retain a high skilled, diverse and motivated team to ensure success.

4 3 Asset Allocation: As Of September 30, 2012 Real Estate, 8.9% Absolute Return Strategy, 2.1% Liquidity, 4.3% Inflation, 3.1% Forestland/ Infrastructure, 1.3% Public Equity, 49.1% Private Equity, 13.5% Income, 17.8%

5 4 Annual Fund Performance vs. Benchmarks 16.0% 14.0% 13.5% 13.4% 12.0% 10.0% 8.0% 9.2% 9.3% 7.7% 8.6% 8.4% 6.0% 4.0% 4.3% 3.6% 2.9% 2.0% 0.0% Fiscal Year To Date Sept Year FY Total Fund Returns 3 Year FY 0.4% 5 Year FY 10 Year FY Benchmark (CalPERS Policy Index) Since Inception

6 CalPERS Total Fund Returns by Asset Class 25% 5 20% 15% 10% 5% 0% -5% 1 Year 3 Year 5 Year 10 Year -10% -15% Absolute Return Strategies Global Equity Fixed Income Real Assets Private Equity

7 CalPERS Emerging and Diverse Manager Forum CalPERS Investment Overview and Plans for Emerging Managers Joe Dear Chief Investment Officer

8 CalPERS Emerging Manager and Diverse Manager Forum CalPERS Five Year Emerging Manager Plan Laurie Weir Senior Portfolio Manager

9 Introduction This presentation will cover: - Objectives of Emerging Manager Programs - CalPERS Emerging Manager Five-Year Plan - EM Definitions, Exposure, and Performance - Diversity and Inclusion Initiatives

10 Objectives of Emerging Manager Programs Generate appropriate risk adjusted investment returns by identifying early stage funds with potential for strong investment performance Access to investment opportunities that may otherwise be overlooked Cultivate the next generation of external portfolio management talent

11 Emerging Manager Five-Year Plan Legislation requires CalPERS and CalSTRS to: - Commence a five-year plan for emerging manager participation - Submit annual progress reports to the Legislature - Define emerging investment manager CalPERS Plan outlines six work streams organized under Portfolio Management and four work streams organized under External Outreach

12 Work Streams in the Five-Year Plan The Portfolio Management EM Program work streams include: - Track and report the performance, cost and diversity of EM strategies - Global Equity s review of their Manager Development and Fund of Funds EM programs - Track and report progress of Private Equity s $100 million and Real Estate s $200 million recent commitments to EM programs - Establish criteria for transitioning EMs to direct investment mandates with CalPERS - Establish criteria for new capital to EM programs - Benchmark CalPERS EM program design and implementation against peers

13 Work Streams in the Five-Year Plan (Cont d) The External Outreach EM Program work streams include: - Improve communication regarding investment proposal submittal and tracking - Improve EM information on CalPERS website - Host and participate in workshops, webinars and conferences - Improve communication and strengthen relationships with stakeholder organizations

14 Emerging Manager Definitions Emerging Manager definitions are established by each asset class. Programs may seek emerging managers domestically or globally. All program reporting will distinguish between domestic US and international emerging manager exposure. Asset Class Parameters Global Equity ARS Global Fixed Income Private Equity Real Assets Fund of Funds Fund of Funds Direct Direct Fund of Funds Mentoring Manager Emerging Manager Program Name Emerging Manager Fund of Funds Fund of Emerging Hedge Funds ne ne Emerging Domestic Private Equity Managers Real Estate Emerging Managers Investment Strategy Long Only - Publicly Traded Securities Hedge Funds All Private Equity Private Equity - Buyout and Special Situations Venture Capital Real Estate Separate Accounts and Commingled Funds Product Size < $1B < $1B < $500M Firm AUM < $2B < $2B < $2B < $1B Length of Track Record First or Second Institutional Fund First or Second Institutional Fund First or Second Institutional Fund First, Second, or Third Separate Account or Institutional Fund Geographic Focus Domestic US Domestic US Urban California

15 Current Emerging Manager Exposure CalPERS has approximately $10 billion currently invested with emerging managers This investment with over 300 emerging managers totals approximately 12% of CalPERS externally managed net asset value CalPERS has committed $900 million to emerging manager programs across several asset classes over the past three years

16 Diverse Manager Exposure CalPERS has invested over $3 billion or approximately 4% of externally managed NAV with over 80 diverse investment managers Exposure through both EM programs and direct relationships 2.6% of externally managed NAV invested with majority minorityowned firms 1.2% of externally managed NAV invested with majority womanowned firms

17 Definition of Diverse External Manager Diverse Investment Management Business - For-profit enterprise, regardless of size - Physically headquartered in U.S. or trust territories - Owned and operated by women and/or minority group members Minority Group Members - U.S. citizens and permanent residents - African American, Asian American, Hispanic American or Native American based on 2010 Census classifications

18 Definition of Diverse External Manager At time of investment, CalPERS Diverse Investment Management Business is: - Substantially Diverse: 25 to 49% minority group and/or womenowned - Majority Diverse: 50% or greater minority group and/or womenowned

19 Definition of Diverse External Manager Private Asset Classes Private Equity and Real Estate - Minority group members and/or women s participation in carried interest in each fund managed by business Public Asset Classes Global Equity, Global Fixed Income, Hedge Funds/Absolute Return Strategies - Minority group members and/or women's participation in the investment advisory for each fund managed by business.

20 Work Streams in Diversity and Inclusion Initiatives The Diversity and Inclusion work streams in CalPERS Investment Office include: - Survey external managers and consultants for diversity in key competency positions - Track and report CalPERS net asset value by asset class managed by minority and women-owned external managers - Track and report the number of investment proposals submitted to each asset class by minority and women-owned firms

21 Conclusion The ten work streams established in the Plan are a significant commitment of resources to ensure that CalPERS EM programs advance investment objectives The Plan provides a road map to build on our successes and identify opportunities for improvement in the future

22 CalPERS Emerging Manager and Diverse Manager Forum Joe Dear Chief Investment Officer Laurie Weir Senior Portfolio Manager