California Public Employees Retirement System is reportedly talking with BlackRock about outsourcing the pension giants buyout business.
CalPERS, the largest pension fund in the U.S., may ask BlackRock to manage all or part of its private-equity holdings, as it seeks to control fees, according to a September 7 Bloomberg report that cited people familiar with the matter. CalPERS and BlackRock, the worlds largest asset manager with $5.7 trillion of assets, declined to comment on a potential agreement.
CalPERS in April began reviewing how it invests in private equity, looking to cut exposure to the asset class because of rising fees. Asset allocators such as pensions and endowments are becoming increasingly concerned about fee transparency and the costs associated with alternative fund managers.
No decisions have been made and we are still looking at models to bring back to the board, John Osborn, a spokesman for CalPERS spokesman, said in an email.
The California pension fund has about $26 billion in private-equity assets that BlackRock could help manage if the preliminary talks lead to an outsourcing arrangement. New York-based BlackRocks latest private-equity fund, BlackRock Private Opportunities III, closed last year with $630 million of capital, according to Palico, which provides an online marketplace for private-equity firms.
[II Deep Dive: CalPERS Review How It Invests in Private Equity]
CalPERS, which has $295 billion of assets under management, allocates 8.9 percent of its portfolio to private-equity strategies, according to its website.
The pension fund reported in July that its private-equity portfolio produced 13.9 percent returns for the fiscal year ended June 30, compared with a 19.7 percent gain for its investments in public equities.
With record levels of capital flowing into private markets this year, fund managers are charging investors higher fees, according to a Preqin report in July.
Management fees for buyout funds, for example, have risen over the last two vintage years to 1.94 percent on average, from 1.85 percent in 2015, the alternative-assets data provider said.