The world’s largest pension scheme, ABP, runs 85 per cent of assets with internal staff and may allocate more of its E155bn ($187bn) portfolio to internal managers, spokesman Michel Meijs revealed exclusively to FT Mandate. Do-it-yourself fund management “yields very low costs, better internal control, more flexibility and thus higher returns”, he said. ABP is the pension fund for 2.4m Dutch government and education sector employees.
The second largest pension fund in the world, the $166bn California Public Employees’ Retirement System (CalPERS) said it had added more value to its portfolio at less risk and lower cost than many other large pension funds during the past five years. It said this was due to managing its assets in-house and the low costs it pays for consulting and custodial services, afforded by an economy of scale.
CalPERS scored a 16.7 per cent return on its investments for the year to June, the best the fund has had for six years.
CalPERS spokesman Brad Pacheco said 73 per cent of the equity portfolio – the passive portion - was run internally. “Our long-term investment strategy is based to a large extent on passive management and we find that the decisions taken by our internal staff have earned us above average returns.”
US research firm Cost Effectiveness Management (CEM), which carried out the analysis for CalPERS, found that the fund saved $144m, compared with its peers. Costs of running the portfolio were $413m in 2003, compared with a peer benchmark of $557m. CEM also found that CalPERS’ investment staff added $7bn in excess returns over the same period, while taking less active risk than its peers.
ABP’s Mr Meijs said: “Most asset categories – equities, fixed income, hedge funds, real estate, commodities, active alpha strategies – are managed in-house, except for those activities that can be done at less cost. For example, index mandates, which are only a very small part of our equity portfolio, and mandates that are too small to build up the internal expertise, such as specific strategies, or which need specific expertise, such as emerging markets.” But he conceded that in-house management was not for everyone. “You need scale to be able to build up the internal expertise,” he said.
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