Calpers, the biggest U.S. public pension fund, said on Friday it would restructure its relationships with hedge fund managers to better control its assets and urged them to base their fees on long-term instead of short-term performance.

The initiative comes amid increased calls for scrutiny of hedge funds by regulators after steep losses arising from Wall Street's turmoil.

The $173 billion California Public Employees' Retirement System, best known as Calpers, said in a statement the initiative would also enhance transparency in its dealings with hedge fund managers.

Calpers bluntly said it now will keep close track of assets managed by hedge funds.

Instead of focusing on commingled accounts, Calpers intends to move toward a focus on customized vehicles, managed accounts and other methods to improve control of its assets, the statement added.

Calpers Chief Investment Officer Joseph Dear said the fund's push to secure more control over assets would also benefit hedge funds.

We believe that investors and managers alike stand to benefit over the long term when interests are better aligned, asset controls are properly instituted and transparency of risks and exposures is improved, said Dear.

Calpers' size and clout in financial markets could prompt other pension funds, which have complained about fees charged by hedge funds, to negotiate new terms of asset management contracts.

In recent years, institutional investors have displaced wealthy individuals as the main clients of hedge funds, Calpers' statement said. However, the hedge fund marketplace has not evolved sufficiently to accommodate what institutional investors require to maximize long-term benefits for their beneficiaries.

(Reporting by Jim Christie; Editing by Dan Grebler)