CalPERS pension fund to review private equity investments: Reuters

Calpers, private equity, pension fund, Goldman Sachs, BlackRock, AlpInvest, Hamilton Lane, HarbourVest, Neuberger Berman
Calpers headquarters is seen in Sacramento, California, October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker (UNITED STATES) - RTXPWO1

The California Public Employees’ Retirement System, or CalPERS, plans to scrutinize its private equity investments at next month’s board meeting with an eye toward reviewing the governance and transparency of the asset class.

Chief Investment Officer Ted Eliopoulos told the investment board on Monday that despite the high returns of its private equity investments, the negative public scrutiny of the asset class had made “it increasingly difficult for CalPERS to compete successfully in the private equity marketplace.”

The “fish bowl of CalPERS may have reached a tipping point for us in private equity,” said Eliopoulos. “Over the course of the past two years and frequently in these monthly investment committee meetings, CalPERS staff is attacked and denigrated for our decision to invest in these funds.”

In July, the pension fund plans to review “the private equity business models available to us,” Eliopoulos told the board, in order to find an “effective governance system to oversee private equity investing.” He warned that if CalPERS cannot find a solution, the board may need to “weigh a much reduced allocation to private equity.”

As the country’s largest public pension fund, CalPERS has come under increasing public pressure to calculate and disclose the fees it pays for its private equity investments.

The fund announced last November that it had shared about 14 percent of its private equity profits over the past year with firms managing the money. The announcement marked a major milestone toward greater fee disclosures within the asset class.

In December, CalPERS announced that it would reduce its private equity asset class from 10 percent to 8 percent of the total portfolio in order to reduce some of the risks in the fund.

Roughly $25.9 billion of CalPERS’ $318.9 billion fund was invested in private equity as of April 30.

Private equity is now the only asset class in CalPERS’ portfolio with a return forecast above 7 percent over the next decade, making the asset class a vital component to maintaining the fund’s assumed return rate of 7 percent by 2020.

CalPERS, along with most public pension funds across the country, has struggled to achieve its investment goals in recent years. CalPERS returned 0.61 percent last year, compared to its assumed rate of return at the time of 7.5 percent.

Photo: CalPERS’ headquarters is seen in Sacramento, California, October 21, 2009. Reuters/Max Whittaker   

Take your pick!

  • Buyouts delivers exclusive news and analysis about private equity deals, fundraising, top-quartile managers and more. Get your FREE trial or subscribe now.
  • VC Journal provides exclusive news and analysis about venture capital deals, fundraising, top-quartile investors and more. Get your FREE trial or subscribe now.