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CalPERS Taps Carlyle For Biggest Pledge Of 2013

The $265 billion California Public Employees’ Retirement System, the largest pension in the United States, approved its biggest private equity commitment so far in 2013, pledging $547 million to The Carlyle Group’s newest flagship fund, Carlyle Partners VI LP, according to Buyouts, peHUB’s sister magazine and board materials made public by CalPERS.  A CalPERS spokesman declined to comment further.

Fund VI has so far raised $10.3 billion, a bit more than its $10 billion target, but that amount is less than the fund’s $12 billion hard cap. In a recent earnings conference call, the firm said that it expects the fund to close later this year.

CalPERS and Carlyle Group have an uncommonly deep investing relationship. Overall, CalPERS has $3.7 billion in private equity capital and unfunded commitments with the firm, an amount that represents 9 percent of CalPERS’s total private equity portfolio. Only Apollo Global Management, with $4 billion in invested capital and unfunded commitments, has a larger relationship. In addition, CalPERS has so far made investments in an unprecedented 31 Carlyle Group fund offerings, and for several years, CalPERS owned a 4 percent equity stake in the firm (which it said it planned to sell this year).

In 2007, CalPERS pledged $800 million to Carlyle Group’s previous flagship fund, Carlyle Partner V LP. That fund has so far returned a net IRR of 9.4 percent along with a 1.3x return multiple, according to CalPERS data from December 31, 2012.

CalPERS has the largest private equity program among U.S. public pension funds. The pension has $31.4 billion in invested private equity capital, which represents a 12 percent private equity allocation, as of June 30. That amount is 2 percent below CalPERS’s 14 percent private equity target. CalPERS also has $9.3 billion in unfunded private equity commitments.

Returns of CalPERS’s private equity program have been strong, returning 13.6 percent for the 12 months to June 2013, and 12.5 percent per year on average over the past decade.  Nevertheless, its private equity program has underperformed benchmarks for the 1-year, 5-year and 10-year periods.  Only during the latest 3-year period did CalPERS outperform its benchmark, according to a report by Pension Consulting Alliance, CalPERS’s private equity consultant.

Carlyle Group, which manages $180 billion in assets, has been on a fundraising tear of late. In its latest quarterly statement, the firm announced that it had raised $6.9 billion in the second quarter and $19.7 billion overall during the last 12 months.

Gregory Roth is a senior editor at Buyouts Magazine. Any opinions expressed here are entirely his own. Follow him on Twitter @RothReuters. Follow Buyouts tweets @Buyouts.

Photo Credit: CalPERS.