• Thursday, June 13, 2024
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The $300bn woman squeezing fund managers’ fees

The $300bn woman squeezing fund managers’ fees

It is hard to imagine Anne Stausboll throwing her weight around. The chief executive of Calpers, the California pension fund, perches somewhat nervously on her chair as a photographer flits around, and she punctuates the conversation with self-deprecating little jokes.

Meanwhile, the plastic duck pond propped in her office is a reminder that she spent last summer fretting over ducklings born in the bushes outside, even building a ramp out of old books so that the brood could get in to paddle.

Yet Ms Stausboll knows how to wield the power of her organisation, which, with a portfolio of investments worth $295bn, is mighty indeed.

Under her leadership, the largest pension fund in the US has been crusading for environmental causes and for better corporate governance at the companies it owns, vigorously defending its pensioners’ benefits through the courts and, most recently, fighting to drive down the fees that fund managers charge.

Calpers was a pioneer among public pension funds in using alternative investments such as hedge funds, private equity and real estate, but it has been questioning whether it is getting value for money from its expensive external managers. It decided last year to axe its entire $4bn allocation to hedge funds, and now it plans to cut the cost and complexity of its $31bn private equity portfolio, too.

But while Calpers has more negotiating muscle than most, Ms Stausboll says fees will come down only if pension funds all push in the same direction.

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“Investors are not naturally coalition builders,” she says. “In order to have our corporate governance and sustainability work be effective, we have had to learn to build coalitions and bring people together, and I think that is something that also needs to be done around this cost issue.

“Some amount of risk has to be rewarded and there are some places where fees will be larger than others, but costs do matter on our bottom line.”

Where Ms Stausboll is most passionate about the power of Calpers to make a difference is in the social and environmental sphere. A vegetarian on moral grounds since her university days, she began her career as a lawyer fighting for equal pay for female workers. On her way to the top she has moved back and forth between Calpers and Californian government, working as deputy to the state treasurer, Phil Angelides, at the turn of the century, when he was pushing for US public pension funds to use their power as shareholders to encourage greener business practices.

Today, Calpers is urging corporations to assess the risks that climate change pose to their businesses; it will be putting motions to shareholder meetings demanding as much. The idea is these shareholder resolutions will be a not-so-subtle nudge to executives to push for more environmentally friendly practices, not just at oil and gas companies but in the insurance sector, in agriculture and across corporate America.

“Our portfolio has to be sustainable for decades and generations, and . . . to make the portfolio sustainable, the companies we invest in have to be sustainable,” she says.

Calpers is also trying to make it easier for shareholders to nominate their own directors to boards, in the hope of making boards less “male, pale and stale”, in its chief executive’s words.

And it is considering whether it can force social inequality on to the boardroom agenda, too, perhaps with resolutions urging companies to assess the risks of rising inequality on the sustainability of their business. The argument for doing something, Ms Stausboll explains, is that inequality could lead to economic instability, excessive borrowing and another market crisis.

“We have the philosophy that you want to do good at the same time you are earning money. As long as looking at these issues is consistent with your fiduciary duty, that that’s the right thing to do.”

Ms Stausboll took over the helm of Calpers at one of the trickiest times in its history, in the depths of a financial crisis that would damage its investment portfolio and raise questions about its long-term ability to fund its members’ pensions, which have still not been fully resolved.

Worse, the organisation has been mired in a corruption scandal in which her predecessor, Fred Buenrostro, has pleaded guilty to taking kickbacks in cash stuffed into paper bags and a shoebox in return for funnelling investment business to private equity firms.

Alfred Villalobos, a former board member and California businessman, was about to stand trial for his role as a “placement agent” in the deals, but he died earlier in January, having apparently committed suicide at a gun range.

“It was a few corrupt individuals that did a horrible thing, not only to the organisation, but really to the industry,” Ms Stausboll says.

Placement agents have to register as lobbyists in California now, and are subject to more disclosures, while Calpers staff are banned from entertaining and being entertained, but she says shaping a culture is as important as writing strict rules. “The moral fibre at Calpers is strong. I have tried to always be very open with the staff, and externally, about what happened and what we did about it. We have always to remember what we learnt and, sadly, it is part of our history.”

Underfunded pension funds around the world have breathed a sigh of relief as equities rebounded from their 2009 nadir, but even after an 18.4 per cent return across its portfolio in its most recent fiscal year, Calpers is still only 77 per cent funded, based on actuarial calculations of its likely future returns and the demographics of its 1.7m members.

Calpers administers pension plans for employees at more than 3,000 state and local government organisations across California, many of whose employers have had to shoulder additional contributions, a burden that falls on taxpayers. That burden may have to remain high to ensure the sustainability of the fund, Ms Stausboll signals, saying that Calpers is considering new rules to keep employer contributions at elevated levels even if investment returns beat expectations.

“We are debating something along the lines of a rainy-day fund,” she said, “creating a buffer against the times when the market does not do so well.”

Meanwhile, Calpers has been fighting, with mixed success, to uphold pension contribution obligations even when a local government goes into bankruptcy, as California’s Stockton and San Bernardino have done. The judge in the Stockton bankruptcy said Calpers could face haircuts like other creditors, but the fund negotiated a deal that avoided pensions being cut. A legal fight is looming in San Bernardino this year.

“It’s not Calpers’s job to set the benefit design, we have got the benefit design that’s been set through bargaining and the legislature,” said Ms Stausboll. “It is clearly our job to make sure those promises are kept, and we will advocate for our members and for those promises to be kept.”

It is a flash of steel, and a reminder of the people on whose behalf Ms Stausboll is wielding Calpers’s outsize power. And it is said with a smile.

Second opinion: The former boss

Phil Angelides was state treasurer of California for eight years from 1999 and promoted Ms Stausboll from the role of general counsel within that department to be his chief deputy.

He describes her as “an extraordinary collaborator”, citing her impact on “investing in the environmental sector and clean energy, strengthening the role of shareholders in corporate governance, and making productive investments in urban areas”.

Mr Angelides went on to chair the US Financial Crisis Inquiry Commission, which examined the roots of the crisis.

Culled from FT