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CalPERS Should Pay Less Fees—Study

A special review at the California Public Employees’ Retirement System has recommended that the giant pension drastically reduce how much it pays private equity fund managers to manage its money.

The review urged CalPERS to change compensation for its alternative asset investments so that “nearly all” of a fund manager’s compensation came from profit-sharing, rather than management fees, according to the The Wall Street Journal. The review, arranged by the law firm Steptoe & Johnson LLP, found that the management fees were providing general partners with “an unnecessary source of profit.”

The pension’s board has asked staff to come up with a plan to implement the recommendations. The board will then vote on whether to adopt those changes.

The review is the latest example of increasingly emboldened large pension funds pressuring general partners to reduce how much they charge to manage money. Traditionally, fund managers have charged a management fee of 1.5 percent to 2 percent of the limited partner’s commitment to pay for employees, office space and other operating expenses. But in recent years, as general partners have raised larger and larger funds, that fee has turned into a lucrative source of revenue, drawing the criticism of many limited partners.

CalPERS, which manages around $220 billion in assets, recently won major fee reductions from Apollo Global Management.

Global M&A Drops In Q4

Global mergers and acquisitions announced in the fourth quarter totaled $529 billion, down 17 percent from the third quarter after three consecutive quarters of growth, and down 11 percent from the fourth quarter of 2009, according to data released by Thomson Reuters on Dec. 17. This marked the weakest fourth quarter for worldwide M&A since 2008, when there was $596 billion of activity.

Still, there was more M&A activity in 2010 compared to 2009, according to the data from the preliminary mergers and acquisitions review. Announced global M&A totaled $2.247 billion, an increase of 19 percent from the $1.892 billion in 2009.

Targets in the U.S. accounted for 34 percent of global activity, ahead of Europe, which accounted for 26 percent, and Asia, which accounted for 19 percent.

The energy and power sector was the most active in M&A, reaching $482 billion for 2010, up 38 percent from 2009. There was also an increase in deal activity in emerging markets, with $378.5 billion of activity, which accounted for 17 percent of total global M&A, the largest percentage for emerging markets on record. Nonetheless, fourth quarter activity for emerging markets was down 24 percent from the fourth quarter of 2009.