CalPERS Seeks to Expand Emerging Manager Efforts

The giant, $237 billion California Public Employees Retirement System says it is seeking a “new investment vehicle,” likely to be a customized fund of funds, to invest in emerging private equity managers, complementing the $2 billion that the pension has already invested in its emerging manager initiatives. CalPERS declined to disclose the size of the proposed vehicle.

Réal Desrochers, who was appointed May 31 as head of CalPERS’s private equity program, said in a statement: “We’re looking for partnerships whose principal officers have individual experiences and underlying investment strategies to generate earnings in the top quartile of private equity investments.”

Overall, CalPERS invests $49 billion in its private equity program, the nation’s largest. That includes $33 billion in invested capital.

“The overall goal” of the new vehicle, said Clark McKinley, a CalPERS spokesman, “is to maximize … prospects for attaining high returns from top-quartile funds. … We want to ensure that we don’t overlook emerging managers and their prospects for high rates of growth and performance.”

CalPERS said it hopes to hire a firm that can complement its other emerging manager initiatives and steer its private equity program toward “funds that eventually might join the core… lineup of partners and funds.” The chosen firm will likely invest for CalPERS for a period of seven to 10 years. Submissions for the “request for information” are due on July 25.

Firms that create customized funds of funds on behalf of pensions typically source and analyze deals, perform due diligence, negotiate transactions and monitor performance. As far as investment categories, CalPERS said the new vehicle won’t be limited to buyout firms, and it will also be able to invest in venture capital and growth equity funds.

The $2 billion that CalPERS already has invested in emerging managers includes the $1 billion Capital Link Fund, which is a customized fund of funds managed by Centinela Capital Partners. It also includes the $1 billion California Initiative, a fund that focuses on female and minority fund managers in California.

CalPERS, the nation’s largest pension fund, administers benefits for 1.6 million state employees.