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CalSavers to appoint Calvert as manager of ESG option, following withdrawal of Newton IM

Californian auto-enrollment scheme seeks approval of board to appoint Washington-based investor.

CalSavers, California’s auto-enrollment workplace pension scheme, looks set to appoint Calvert Research and Management to run its ESG option, subject to board approval later this month.

In February, the pioneering scheme was forced to put out a request for proposals to manage its ESG offering after attempts to renew with the current provider Newton Investment Management faltered, following low uptake among members.

CalSavers board members, including John Chiang, then California State Treasurer, fought hard for the inclusion of an ESG option for the nascent scheme in 2018 after an initial search was abandoned due to the quality of bids, particularly around costs.

But the option has been dogged by low uptake. The inertia of pension scheme members when it comes to shifting from defaults is well-documented.

Agenda documents posted ahead of the meeting of the CalSavers board on 24 May reveal that just 0.5 percent of funded accounts have selected the ESG option, representing assets of $662,000.

The contract to run the ESG option is a “zero-dollar” one, meaning the selected firm would be compensated by fees levied on participants.

A spokesperson for Calvert, when asked how it would attract members to the option, declined to comment, telling Responsible Investor: “We aren’t in a position to discuss anything until it is finalised.”

US consultant Meketa Investment Group, which helped with the original search in 2018, has supported the recruitment of a replacement for Newton, the London-based subsidiary of US giant BNY Mellon, which has managed the ESG option for the last three years.

Seven proposals were submitted before the March deadline, but only four were “complete and met all the requirements to be considered by the evaluation committee”, the documents reveal.

The other three considered bidders, all based in the US, were MassMutual, T Rowe Price and Boston Partners Global Investors. Boston Partners is owned by Japanese financial group Orix, which is also a majority owner of Dutch investment manager Robeco.

Calvert’s fees, which were the lowest of the four considered at 0.19 percent, put it in the “dominant position”, according to the documents, given that costs were given at least 30 percent weighting in the evaluation. The Washington DC-based asset manager was the only bidder to make it to the interview phase.

Nineteen fund managers competed for CalSavers’ ESG option in December 2018, with Franklin Templeton, Northern Trust, Nuveen and Schroders making the shortlist alongside the winning Newton bid. None returned for the current tender.

Calvert’s offering is its Calvert US Large-Cap Core Responsible Index Fund, an all-equity, passively managed index fund. The fund is designed to track the Calvert US Large Cap Responsible Index and the Russell 1000 Index.

The equity-only option put forward by Calvert diverges significantly from the incumbent Newton option, which is a balanced fund composed of 60 percent active ESG equity and 40 percent passive ESG bond strategy.

Due to these differences, participants in the Newton offering will be consulted and will actively have to choose to invest through the new Calvert option. Those that don’t respond will automatically be switched to CalSavers default fund.

When asked if this might result in a drop in the number of members investing through the ESG option, the scheme’s executive director, Katie Selenski told RI: “While it’s possible that not all the current ESG asset holders will take action to direct us to invest those assets into the new option, we believe the new Calvert fund will be attractive to many current and future savers.”

If awarded the contract, Calvert would provide their option for three years with the option of three one-year extensions.

Following approval by CalSavers’ board, the conversion from Newton to Calvert is expected to complete by November.

Calvert was acquired by Boston-based investment house Eaton Vance in 2016. Eaton Vance was in turn bought by Morgan Stanley in 2021.