CalPERS is a less competitive PE investor because of its strong stance on fees and expenses

The chief investment officer of California Public Employees’ Retirement System, Ted Eliopoulos, said recently CalPERS may have to reassess its commitment to private equity, including considering cutting its exposure, because negative public sentiment has made it harder for the system to compete in the PE market.

The “fish bowl of CalPERS may have reached a tipping point for us in private equity,” said Eliopoulos, according to Reuters. “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.”

I’m not sure why intense public scrutiny should lead to CalPERS abandoning a strong performer in its portfolio. I’d say CalPERS has become less competitive in the PE marketplace because of its strong stance on things like fees and expenses.

Managers these days have a lot of other options than CalPERS, which was once the most powerful LP in the business. Today top performing GPs don’t have to deal with LPs who push back on terms, or who have what some consider burdensome reporting processes. They can source capital from large institutions less concerned about negotiating hard at the table over terms, and more interested in sourcing direct opportunities alongside their GPs.

One reader said: “The day CalPERS starts to kowtow to public scrutiny is the beginning of the end … the thought of them pulling out of the asset class or reducing their exposure because a public interest group deems their decisions to be distasteful is absurd.”

CalPERS’s private equity portfolio is valued at about $26.4 billion. The system has undertaken a seemingly herculean project of trimming its PE portfolio from 100 managers to somewhere around 30 over a number of years. This can be accomplished through attrition – allowing funds to run to their term, or sell its interests in funds on the secondary market.

If CalPERS shrinks its portfolio to around 30 managers, but keeps its allocation at 8 percent, that means the system will be cutting big checks to a handful of managers. To me, it’s possible CalPERS will reduce its PE allocation despite people saying mean things about the system.

I’m a fan of CalPERS’s tough stance, for the record. But the reality is, that tough stance is what has made the system a less desirable partner to top GPs. What do you think? Reach me at

Private Equity Editor Chris Witkowsky reflects at home. Photo by Wendy Witkowsky