California’s CalSavers readies ESG tender featuring low-cost blend of passive/active equity and fixed income

Total scheme could grow to multi-billions over time

Since this story was published, it has been confirmed that the Board has approved the issuance of the RFP.

California’s ambitious new auto-enrolment workplace pension scheme – predicted to swell to $98bn in assets over the next 15 years – is preparing to issue a request for proposals (RFP) for its revived ESG option which, pending board approval, will go to market next month.

The plan calls for an unusual blending of passive and active equity and fixed income.

There was a meeting of the scheme’s investment board this week and, assuming it gets the nod, the RFP is slated to go to market on December 3, according to meeting documents.

CalSavers, according to the draft, plans to solicit for a “single best in class ESG offering” featuring “balanced” exposure to equity and fixed income investments.

To keep costs down, the draft RFP says CalSavers would “consider blending a passive fund with low fees and an active fund with a more targeted approach to ESG”.

Fees were the stumbling block which led to the original ESG option being dropped by CalSavers when it appointed State Street Global Advisors to manage its main investments in August.

But speaking to RI last month, California’s outgoing Treasurer, John Chiang, said: “We are going to bring that ESG option back up because many of us strongly believe in it.”This followed what a spokesperson for Chiang called an “in-depth review” by investment consultant Meketa.

Meketa concluded in a presentation to CalSavers’ board last month that a “well-crafted RFP” for the ESG option would “elicit qualified responses from the industry”.

“Blending a passive fund with low fees and an active fund with a more targeted approach to ESG

CalSavers’ board – which includes Chiang and California Controller Betty Yee – subsequently directed its staff to develop such an RFP based on Meketa’s recommendations.

The board’s preference for fees in line with existing investment options is clear, though it acknowledges they “might be difficult to secure”.

The mandate will run for an initial three years, with an option to extend for three one-year terms.

It is described as a “zero dollar contract” in which the successful manager(s) will be “compensated by fees levied on participants”.

There’s a deadline for proposals set at January 11 and winners will be announced by February 8.

CalSavers is currently looking for employers to join its pilot before it rolls out statewide next year.