US pension fund in talks over possible tie-up with BlackRock

BlackRock is best known for offering lower-fee passive products while the California Public Employees' Retirement System, the largest US pension fund, is seeking to improve investment performance and reduce fees.
BlackRock is best known for offering lower-fee passive products while the California Public Employees' Retirement System, the largest US pension fund, is seeking to improve investment performance and reduce fees.PHOTO: BLOOMBERG

Two sides in discussions over management of fund's private equity investments

NEW YORK • The largest US pension fund is talking to BlackRock about outsourcing its private equity business as it seeks to control fees and offset anaemic returns, people familiar with the matter said.

The California Public Employees' Retirement System (Calpers) is in discussions with BlackRock about managing some or all of its US$26.2 billion (S$35.1 billion) in private equity investments, said the people, who asked not to be identified because the conversations were private. The discussions are preliminary, they said.

Calpers spokesman John Osborn and Mr Brian Beades, a spokesman for BlackRock, declined to comment.

Calpers is reckoning with criticism over its private equity investing and how it discloses and accounts for fees. The pension giant convened a panel of executives, including Carlyle Group's Sandra Horbach and BlackRock's Mark Wiseman, to discuss possible models during a board meeting in July.

Calpers leadership raised questions about the challenges of bringing direct-investing capabilities in-house, contracting outside managers or creating an independent entity with appropriate oversight.

Calpers, which manages about US$333 billion on behalf of current and retired government employees, is trying to improve its investment performance and reduce fees amid low returns. In December, Calpers voted to cut its long-term return target from 7.5 per cent a year to 7 per cent, a move that will require larger contributions from workers and taxpayers.

The mandate would be a big win for BlackRock, which is best known for offering lower-fee passive products, such as iShares exchange-traded funds.

The world's largest money manager, which oversees US$5.7 trillion in assets, has been trying to expand its more lucrative alternatives business to increase fee revenue and meet client demand for investments that are not closely correlated to the stock and bond markets.

BlackRock's US$128 billion alternatives business includes private equity, real estate, infrastructure and hedge funds.

Mr Real Desrochers, the head of Calpers's private equity division, quit in April. The fund has not announced plans to replace him.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 09, 2017, with the headline 'US pension fund in talks over possible tie-up with BlackRock'. Print Edition | Subscribe