Investments

Issues Update

CalPERS wishes to note some important key facts about investment compensation and incentive awards in light of today's Associated Press story:

• Performance of investment staff and awards are examined by CalPERS Board Compensation Committee and voted on by the full Board. This is done with an outside assessment by an independent compensation consultant. The individual performance objectives are developed and approved by the Board in coordination with the outside consultants.
• Awards are based on multi-year performance that includes 1-3-5 year returns. Awards paid as of June 30, 2009 were based on individual portfolio objectives and the performance of the total fund that includes the following returns (2005: 12.7%, 2006: 12.3%, 2007: 19.1%, 2008: -5%, 2009: -24%) – this includes three positive investment returns. It should also be noted that market declines will continue to dampen size of incentives in future years.
• Approximately $1.8 million was paid to 48 investment professionals as of June 30, 2009. This represents .01% of CalPERS total assets at the time. It is also 47% less than we paid in 2008 and 50% less than 2007.
• Awards incentivize long-term performance instead of short-term orientation that increases risk
• Incentives are part of total compensation and critical to the fund’s long-term success as well as recruitment and retention of skilled investment professionals.
• In-house management saves taxpayers money. External management fees are generally 10 times more expensive than costs associated with internal management. Retention is also important because it costs more to recruit individuals than to keep them. Typically recruitment for an investment professional is $100k plus the loss of experience and opportunity loss.
• It is important to keep in mind that it is this same investment staff that has helped the fund to recover by more than $50 billion in assets since our low point during the market downturn.
• CalPERS Board has made some changes to the compensation program to increase accountability. The new features include: the Board can defer, cut or eliminate performance awards if the fund’s fiscal year absolute return is less than zero percent, or for any other reason.
  • Awards only given to staff employed by CalPERS at the time the award is to be paid, except in the case of involuntary separation without cause.
  • Eligible employees must be in compliance with all regulatory requirements and ethics and conflict-of-interest policies.
  • CalPERS can also require repayment of a performance award, with interest, if within three years of the payment it is discovered the employee was not entitled to the award because of a policy violation.