Despite some highlights, and a lot of high-profile activity recently, the California Public Employees’ Retirement System’s actual $3.8bn (€2.9bn) corporate governance investment program is underperforming, according to a consultant’s report for the fund.
And it has emerged the $201bn fund has made no new corporate governance investments in the year to date.
The news comes as CalPERS has been visible in discussions with the government and regulators in the wake of the financial crisis – on issues such as the SEC’s pay-to-play rule, the regulation of hedge funds and the future of ratings agencies. CalPERS is “stepping up activism” wrote CalPERS’ president Rob Feckner in a newspaper article over the weekend.
“The system’s total corporate governance program underperformed its objective,” Wilshire Associates said in an analysis of the scheme’s performance presented to the board recently – although the program outperformed the total fund return. A spokesman said the fund’s corporate governance unit has capital with US and international managers who run corporate governance funds.
The domestic managers include, via 10 mandates, Blum Capital, Breeden Partners, New Mountain Capital, Relational Investors and Shamrock Partners. On the international side there are 11 briefs spread betweenGovernance for Owners, Breeden, Hermes, Knight Vinke, Lazard and Taiyo Pacific Partners.
The spokesman explained the managers take larger than usual stakes in public companies “to obtain share leverage and a stronger voice to attain governance changes in a company leading to enhanced share value”. The program is around 10 years old.
The segment returned 16% in the second quarter against a 17% policy index, while over the one-year horizon it has returned -27.4%, -1.2% off the index. It’s also down -2.3% and -1.8% over the three-year and five-year time frames, according to the report.
In addition, according to papers released by the fund on September 14, no corporate governance investment proposals were entered for the year to the end of July, compared to seven for the whole of 2008. And 13 were declined or failed to materialize in the first six months, against six for the whole of last year.
The spokesman confirmed the numbers but stressed this did not mean that fund was “not doing anything with corporate governance”.
“We are stepping up activism to influence financial market reforms,” said Feckner in the Sacramento Bee newspaper. “Because of our forward-thinking programs, the Obama administration invited our input on the future of market reforms for the entire country.”