US – The California Public Employees' Retirement System, the largest US pension fund, has hailed its success in taking the management of its portfolio in-house.

CalPERS’ investment staff took advantage of market opportunities to earn $1.6bn more than the fund would have gained in 2004 by just following its asset allocation policy, according to a report by Cost Effectiveness Measurement.

It said the activities of the fund’s staff has made it an extra $14bn over the last ten years.

"This report indicates that one of our best investments is the high quality of our in-house professional staff," said Charles Valdes, chair of CalPERS’ investment committee. "They have generated most of these savings by managing much of our portfolio in-house."

Valdes’ comments follow the news from Swedish buffer fund AP2, which revealed an 8.4% investment return in the first half after it cut 16 external mandates.

CalPERS added that it spent $424m to manage its investment portfolio in 2004, paying less for consulting, custodial and active management services than its peers.

CalPERS spent $74.5m less for external management than its peers, the CEM report said.

It added that the scheme “added value in all major asset classes in 2004 to exceed many of its peers, who used a similar asset allocation policy”. CEM benchmarked CalPERS against 143 US, 79 Canadian, 15 European and 11 Australian pension funds.

CalPERS earned a 13.5% return in 2004.

Meanwhile, CalPERS’ staff are seeking approval from the investment committee to issue an RFP for active international developed markets and emerging markets managers.

“It is anticipated that most of the funding for the managers will come primarily from CalPERS’ passively managed international assets,” an internal note stated. Some funding may come from a cut in the assets at its active international equity managers.