Buyouts Snapshot: Private equity bonuses diverge at two biggest pension funds

Despite generating similar returns, private equity investment staff at the California State Teachers’ Retirement System received fiscal year bonuses that amounted to only a fraction of what their peers at the California Public Employees’ Retirement System received, according to state documents.

CalPERS and CalSTRS are two of the largest and most prominent investors in private equity and their portfolios, valued at $31.2 billion and $21.1 billion respectively, generated 20 percent and 19.6 percent during the 2013-2014 fiscal year. For those returns, CalSTRS Director of Private Equity Margot Wirth received a $29,392 bonus, whereas CalPERS private equity chief Réal Desrochers earned more than $176,000.

Both retirement system’s failed to clear their performance benchmarks for the year, but unlike CalPERS, CalSTRS hinges 50 percent of Wirth’s bonus on the portfolio’s performance against that benchmark. CalSTRS’ five private equity portfolio managers received bonuses equal to roughly 10 percent to 13 percent of of their annual salary, despite being eligible for as much as 60 percent to 75 percent.

CalSTRS has since determined that their private equity benchmark, a modified Russell 3000 plus three percentage points, did not fit the long-term investment profile of its portfolio. The $187 billion retirement system switched to State Street’s GX Private Equity Index in July, which tracks performance at roughly 2,300 funds that represent $2 trillion of private equity investments.

“We realize there is a bit of a disconnect between our performance vs. the benchmark we had been using, which was a public benchmark,” spokesman Ricardo Duran told Buyouts. “The benchmark we were using wasn’t the best.

The retirement system will calculate future bonuses against the new benchmark. It did not assess if its private equity portfolio would have cleared the State Street benchmark during the 2013-2014 fiscal year, and it has no plans to reassess its investment staff’s 2013-2014 incentive pay against the new benchmark, Duran said.

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