How Much Does CalPERS Pay in Fees? Only a Computer Can Say.

Last month, County News reported on the growing use of more complex, alternative investments by California’s pension funds and the added fees that come along with it. As it turns out, those investments are so complex that CalPERS can’t even say how much those fees amount to -- at least not on its own.

When asked point blank how much the state’s largest pension fund was paying private equity managers in 2015, CalPERS’ chief operating investment officer said he didn’t know. Only computer software could provide the answer, with algorithms eventually determining the fund had paid $3.4 billion over the past 25 years (for 2016, the figure was $490 million).

The development of these programs has helped the fund manage risks in new and innovative ways, pension managers say. But some critics worry that it hurts their ability to properly analyze performance.

It also makes it harder to be transparent. According to Pew Charitable Trusts, an estimated $4 billion in paid fees went unreported publicly. In addition, CalPERS doesn’t always get the information it needs for proper tallies.

Marc Levine, who chairs the Illinois State Board of Investment, has a word of advice:  

“If you’re using software to deal with the complexity in your portfolio maybe you should simplify your portfolio first.”

Don’t hold your breath. With CalPERS continually failing to meet projected returns, experts only expect the reliance on these higher-yield investments to grow.


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