CalPERS to Actively Manage Part of Portfolio

History shows that most money managers can’t beat the stock market average over time, but that isn’t stopping the nation’s largest public pension fund from trying.

The California Public Employees’ Retirement System, or CalPERS, on Tuesday announced that it will begin actively managing, in-house, as much as $2 billion of its $134-billion investment portfolio.

Like most huge pension funds, most of CalPERS’ stock assets are “indexed,” meaning they are invested in all of the stocks that make up major market indexes, such as the Standard & Poor’s 500.

Thus, the CalPERS equity portfolio will, for the most part, follow the market trend.

But CalPERS also has allocated about 20% of its U.S. equity assets in recent years to outside money managers who attempt to pick stocks that will beat the market.

The fund says it will add to that actively managed portfolio portion by allowing in-house employees to actively invest as much as $2 billion. CalPERS said its employees will invest in U.S. stocks using computer-driven analyses, in blocks of $200 million to $500 million.

“We have a talented investment staff, with the expertise and experience to broaden our exposure” to active money management, said William D. Crist, president of the fund’s board of administration.

“Active management provides an additional net for CalPERS to capture opportunities present in today’s volatile market,” added Charles P. Valdes, who chairs the fund’s investment committee.

Pat Macht, chief of public affairs for CalPERS in Sacramento, said the pension fund will probably hire a few more investment officers to complement the 60 employees currently in its investment department.

The fund’s in-house managers will have their work cut out for them: In the 15 years ended Sept. 30, mutual funds passively invested in the S&P; 500 index gained 844%.

That far exceeds the average actively managed mutual fund’s gain, which was 526%, according to Lipper Analytical Services.

Still, if blue-chip stocks were to fall out of favor for a long period, the odds of active managers beating the market could rise.