CalPERS Invests $100 Million in Corporate Governance Fund Targeting Continental Europe; Fund Renews International Fixed Income and Currency Overlay Managers.

Business Editors

SACRAMENTO, Calif.--(BUSINESS WIRE)--Dec. 17, 2002

The California Public Employees' Retirement System (CalPERS) has approved a $100 million investment in the Hermes European Focus Fund, a corporate governance fund that targets underperforming companies in Continental Europe.

The English limited partnership, created by London, England-based Hermes Focus Asset Management Europe Limited, will acquire large stakes in a small number of undervalued publicly-traded companies in Continental Europe. It will use its influence as a large and active investor to affect financial and operational restructuring to increase value for all shareowners.

"This fund complements our philosophy that good corporate governance practices can promote positive change and increase shareowner value," said William D. Crist, President of CalPERS Board of Administration. "We have learned that active corporate governance strategies helps reduce risk while adding value to our investment portfolio."

Hermes expects to have a concentrated portfolio of five to 20 companies, with a goal of outperforming the FTSE World Series Europe Index by five percent annually over 3 years. It is a strategy to add value by investing in European companies that have a significant gap between the current trading price of the company versus its actual value if managed properly. Hermes seeks to narrow this value gap by improving the company's corporate governance, capital structure and senior management.

"We believe the timing is right for this fund," said Michael Flaherman, Chair of CalPERS Investment Committee. "Changes in shareowner rights and an increased unwinding of cross-shareholding in Continental Europe have created tremendous opportunity for governance funds."

Hermes European Focus Fund has the backing of 10 institutional investors and funds under management of approximately 350 million euros, with a target size of 2 billion euros.

CalPERS also has a $200 million investment in the Hermes UK Focus Fund, a corporate governance fund targeting undervalued public companies in the United Kingdom.

In September, CalPERS invested $200 million in a corporate governance fund run by Tokyo, Japan-based SPARX Asset Management Company, Ltd.

The recent moves by CalPERS to invest in funds that target underperforming companies is part of a $1.2 billion investment allocation to external active corporate governance managers made by the pension fund in November 2001.

In other actions, CalPERS Investment Committee renewed the contracts of six international fixed income managers and its two currency overlay managers for a period of one year.

The international fixed income managers include Baring Asset Management, Bridgewater Associates, Julius Baer, Rogge Global Partners, Wellington Management Company, and Western Asset Management.

Pareto Partners and State Street Global Advisors will continue as the pension fund's currency overlay managers.

CalPERS is the nation's largest public pension fund with assets totaling more than $132 billion. The System provides retirement and health benefits to 1.3 million State and local public employees and their families. For further information about CalPERS, please visit the System's web site at www.calpers.ca.gov.