CalPERS sees improvement in PE portfolio performance

This follows a decision in early 2014 to reduce the pension system's private equity allocation and CIO Ted Eliopoulos telling the Financial Times earlier this week that he is reducing CalPERS' number of GP relationships and would "use every possible lever" to drive down costs. Last year the pension system pulled out of hedge funds entirely.

Private equity returns on a one-year, five-year and 10-year basis were 20%, 18.7% and 13.3%, according to CalPERS' 2013-2014 annual report. This compares to 18.2%, 7.1% and 12.3% in June 2013.

The pension system's overall one-year return for the 12 months ended June 2014 was 18.4%, with public equities the best-performing asset class on 24.8%. On a five-year and a 10-year basis, the CalPERS portfolio has delivered gains of 12.5% and 7.2%, respectively.

Total assets came to $301.5 billion, up from $277 billion the previous year. Of this, 10.5% - or $31.5 billion - was in private equity. There is a further $29.6 billion in real assets.

In February 2014, CalPERS said it would lower its target private equity allocation from 14% to 12% over a two-year period, with an interim target of 10%. It is part of a wider effort to reduce investment risk that will also see the real estate allocation increase from 9% to 11% while infrastructure and forestry jump from 2% to 3%.

The pension system launched a strategic reorientation of its program in 2011 with a view to focusing on a smaller number of managers. Between September 2011 and December 2013, the number of GP relationships fell from 398 to 389, while the number of PE funds receiving commitments dropped from 762 to 741.

CalPERS hopes to reduce the number of GPs it works with to 120, with Elipoulos suggesting the final number could fall below 100. This does not signal a substantial drop in the overall private equity allocation, rather a concentration of existing resources on a smaller number of managers.

"By having fewer managers, at larger scale, we will be able to reduce our overall costs," he said. "We are looking at every possible lever to use to lessen the cost but make sure we still have access to the talent that we need."

The fees charged by GPs have become a controversial issue in the last year or so and CalPERS wants to work with other LPs on reducing costs in this area.

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• Topics
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• California Public Employees' Retirement System (CalPERS)
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