CalPERS’s Journey Into Smart Beta Has Boosted Equity Returns

Since 2006 the biggest U.S. public pension fund has built its smart beta business with external and in-house strategies and products.

Institutional Investor


March 17, 2015


By Robert Stowe England

The California Public Employees’ Retirement System became a leading institutional investor in smart beta by following a philosophy that has evolved over the past decade. The biggest U.S. public pension fund defines the smart beta exposure it wants to add to its equity portfolio and finds the best way to get there at the lowest cost. That could mean sourcing the strategy and the product externally, or creating one or both in-house.

Smart beta rejects index or portfolio weighting by market capitalization in favor of a rules-based approach designed to outperform passive investments in traditional market-cap indexes. Although such strategies are typically viewed as passive, CalPERS — which prefers the term “alternative beta” — treats them as active investments.

The Sacramento-based pension fund had $28 billion allocated to alternative beta at the end of 2014. Its targeted exposures can be fundamental company factors such as book value, earnings, revenue, sales, dividends and total number of employees, or share price pattern factors like low volatility or momentum, explains Dan Bienvenue, senior investment officer for global equity. CalPERS then looks to index developers and model designers to see if they can capture the exposure it seeks.

“If we think we can hire a model provider at a competitive price and use our internal resources for other things, then we’ll do that,” Bienvenue says. “However, if all the products and providers just really weren’t designed and tailored to exactly what we want to achieve, that’s one we build for ourselves.”

Read more here.



Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

Visit Mind over Market:

Mind Over Market

Click Here>>