SWITZERLAND - Mark Anson, chief investment officer for the $175bn California Public Employees' Retirement System, CalPERS, says pension funds should pursue alpha independently from beta.

Anson told the IFM conference in Switzerland today that pension funds should move away from the traditional model and stop trying to get excess returns from their beta portfolio.

Anson told the conference that beta drivers are still “very important” but did not always offer the opportunity for extra returns.

“I would tell this to every pension fund manager whether in the US, Europe, Asia or South America,” he told IPE on the sidelines of the conference.

“Most large pension funds now realize they are trying to extract alpha from their benchmark beta drivers and it is not easy and they can see it in their investment returns.”

He added the scheme had changed its attitude to alpha in the last four years. Reflecting on the possibility of the same happening Europe, he said: “The European time would be 20 years.”

He said the fund had committed a lot of money to the ‘beta part’ of the US equity market, without trying to find a source of extra return from large-cap equities.

In their pursuit of alpha, pension funds should aim at inefficient markets and sub-assets, like distressed debt – “thinking outside the benchmark but remembering that there is no ‘superior asset class’”.

“Greater returns do not imply superiority.”

Anson stressed that alpha drivers are not a panacea for pension funds as they can retain some measure of beta exposure and leave the fund exposed to the risk that some managers charge for “any amount of positive return generated - alpha or beta”.

He also warned against pension funds’ tendency to forget to optimize alpha drivers and to lose sight of their liabilities.

He also spoke of a potential “convergence” of the hedge fund and private equity markets.

“The concern right now is we have seen hedge fund managers creeping into the private equity space. We have also seen some private equity companies start hedge fund groups,” he told IPE. He stressed that the two businesses required different skills.

He said his comments were “a note of caution”.

“We are not going to flee from private equity or hedge funds, we are pretty firmly committed to both.”

Anson declined to comment on the possibility of CalPERS being forced to switch to a defined contribution regime, as suggested by California governor Arnold Schwarzenegger.