CALPERS WEIGHS SWITCH TO AGGRESSIVE INVESTING.

Byline: Edward Iwata San Francisco Examiner 

The California Public Employees Retirement System, the nation's largest public pension fund with $112 billion in worldwide assets, hopes to adopt a more aggressive style of investing that will boost its returns over many years.

To that end, CalPERS is inviting new bids from investment firms to manage a large chunk of its U.S. stock portfolio. The fund may even pay performance bonuses to attract more firms.

Using larger firms and more aggressive money managers CalPERS hopes to bring in an additional $140 million return on the $7.2 billion in domestic stocks overseen by outside managers.

``It's an important step forward for us,'' said Robert Boldt, senior investment officer for CalPERS. ``We can always do better.''

In recent months, CalPERS has closely scrutinized its investment strategies and sought new ways to jazz up its vast portfolio of stocks, bonds and real estate. CalPERS' net return for the 12 months ended Jan. 31 was 13.4 percent, edging its internal benchmark of 13.2 percent.

The possible fallout from the proposal? Some smaller or underperforming investment firms who work with CalPERS may lose out. Boldt said the pension fund probably will cut loose several current firms, while hiring new ones.

Today, 11 investment firms handle the $7.2 billion in U.S. stock investments for CalPERS.

A staff report on Boldt's proposal was accepted by CalPERS' investment committee in February. This fall, the 13-member CalPERS board - which includes state Treasurer Matt Fong and state Controller Kathleen Connell - will vote on the proposals.

At this early stage, Boldt said the board appears to back his proposals - as long as the investment strategies ``do not expose our assets to undue risk.''

Investment experts said CalPERS wants to work with midsize and large firms that enjoy new technology, big research staffs and strong performance over the years. Small firms often do well in their early years, but many run into trouble coping with rapid growth in their work forces and assets under management. As a result, their investment performance tails off.

Traditionally, CalPERS hasn't forked out the hefty pay desired by top investment firms and stars on Wall Street. That may change with Boldt's proposal, which rewards money managers for more dazzling performance.

For instance, a firm that manages $100 million for CalPERS may earn a base fee of $100,000. But if the portfolio's investment return exceeds an agreed-on benchmark by 4 percent, the firm gets a $650,000 bonus fee.

``By going to a performance fee schedule, it will tempt more money managers to bid for CalPERS business,'' said Barry Dennis, managing director of Strategic Investment Solutions, an investment consulting firm in San Francisco. ``There is a degree of prestige that goes with that assignment.''

Industry experts said CalPERS was disappointed last year by some of the outside investment firms. Three of the 11 are on ``probation'' with the fund, which closely monitors management changes, legal troubles or investment problems at the firms.

Brad Pacheco, a CalPERS spokesman, said the fund does not publicly disclose the names of firms on probation.

CalPERS executives said Amerindo Investment Advisors Inc., the high-flying San Francisco investment firm that got slammed recently by the stock market, is not on its probation list. Amerindo plows much of its $3 billion in assets under management into volatile technology and Internet stocks, such as Cisco Systems in San Jose and Netscape Communications in Mountain View.

Last year, Amerindo suffered a whopping 31.5 percent decline on the $140 million it manages for CalPERS.

Sheryl Pressler, CalPERS' chief investment officer, praised Amerindo as a high-caliber money manager that boasted strong gains over the past five years.

``Yes, they take large bets - but nobody complained when Amerindo was up 35 percent in 1995,'' Pressler said. ``(Their stocks) may be volatile, but overall they make investments that will allow us to beat the market. We're long-term investors, and we look at long-term trends and performance.''

To hedge the risky moves made by firms such as Amerindo, Pressler said CalPERS hopes to adopt a $4 billion ``market completion fund'' with safer stocks and less daring money managers.

In addition, Pressler and Boldt would like to see more of the fund's assets run by CalPERS' own investment pros. Under their plan, the fund's managers initially will invest $500 million in U.S. stock and global bonds.

Rather than rely on the judgment of money managers, CalPERS would lean heavily on quantitative analysis, a classic investment model based on a company's finances and market and economic projections.

All of the moves would entail a more aggressive investment style known as ``active management,'' in which managers seek returns higher than the performance of stock-market benchmarks, such as the Standard & Poor's 500.

Boldt was hired in December to run CalPERS' Investment Office and its 55 employees. A Wall Street veteran of 23 years, Boldt is a former executive at Fisher Investments and Scudder, Stevens & Clark.