CalPERS presses ahead with $37 million STP plan

The California Public Employees Retirement System is moving forward with its $37 million four-year straight-through processing project, despite the delay of the T+1 deadline, and the economic conditions that have shrunk the fund manager’s assets under management, according to John Korach, chief of CalPERS fiscal services division.

Delivering the keynote address at Waters Magazine’s 2002 Financial and Risk Management Technology Congress in New York, Korach said some within the CalPERS organisation had questioned the need for pushing forward with the project, particularly after the Securities Industry Association postponed indefinitely its T+1 deadline. The SIA had mandated that by 2004 the entire US securities industry should be prepared to settle and clear trades one day after the trades were executed, but it began backing off that deadline late last year, and postponed it indefinitely this summer.

Other concerns about the project stemmed from careful scrutiny of CalPERS initiatives, as market conditions have shrunk the fund manager’s assets under management by tens of billions of dollars, from a high of over $170 billion. Korach, who was introduced prior to his presentation as responsible for managing the operations of CalPERS’ 14 funds with assets exceeding $149 billion, quipped: “That was the figure when I prepared the remarks, we are now at $143 billion.”

However, the massive fund manager anticipates it will save $45 million in six years from the project, which is now in its request-for-proposal (RFP) phase, said Korach.

Expected benefits of the system are the ability to process an increased number of trades in a day; cost reductions from the elimination of manual processing; and a subsequent reduction in trade failures from increased automation.

The biggest challenge of the project is a conversion to a single data repository, from the current system in which “custodians, traders, accountants and partners all look at different data depositories,” says Korach.

The project began with a “to be” phase, during which a business model for the system was derived. In September 2001, the project moved into the feasibility phase, in which decisions were made about building versus buying different components of the system, and the conceptual design was further developed.

The current RFP phase of the project includes RFPs for an equity order management system and a middleware system.