CalPERS Looks to Shovel More Money Into Private Equity

The California pension fund may have to increase its annual commitments to $10 billion if it wants to hit its allocation target.

Ken James/Bloomberg

Ken James/Bloomberg

The California Public Employees’ Retirement System is making an effort to invest even more capital in private equity.

CalPERS made $6.7 billion in commitments to the asset class during the 2018-2019 fiscal year, according to documents published ahead of the pension fund’s annual review of its private equity program on November 18. This is an increase from the $5.3 billion committed during the prior fiscal year, per a review by CalPERS’ consultant Meketa Investment Group.

However, given that the retirement system is targeting a total private equity allocation of 8 percent of assets under management, CalPERS investment staff believe they will need to commit $10 billion or more per year to stay on target, according to Meketa. The recent hire of Greg Ruiz as managing director of private equity in May was one step taken to help the California pension grow its focus on the asset class.

“The appointment of a permanent MID is expected to help continue the growth and development of the program,” Meketa said in its review.

CalPERS staff has also been working to develop a comprehensive co-investment policy and to expand its list of investment managers beyond the pension’s “core 30” to increase the number of investment opportunities available, Meketa’s letter said.

In doing so, the pension fund will create more opportunities for “deploying capital in attractive investments at scale,” Meketa said.

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The capital committed by CalPERS during the fiscal year 2018-2019 was to 17 funds and one separately managed account, according to Meketa. CalPERS exceeded its yearly allocation target of $6 billion via these commitments, the consultant said. In the prior fiscal year, CalPERS committed $5.3 billion across 19 funds.

The increase in committed capital occurred despite a year-over-year decline in the number of investment proposals. Meketa reported that CalPERS received 61 proposals this past year, compared to 89 the year prior.

For the period ending June 30, CalPERS’ private equity investments beat the program’s one-year and 20-year benchmarks, according to the annual review. However, it underperformed the fund’s three-, five-, and ten-year benchmarks.

Still, Meketa noted, CalPERS’ private equity funds outperformed its public equity investments.