CalPERS’ Bienvenue: SPACs are fraught with potential misalignment

Special purpose acquisition companies are both an opportunity and a threat, interim chief investment officer Dan Bienvenue tells the pension’s investment committee.

California Public Employees’ Retirement System, the US’s largest public pension, is wary of the special purpose acquisition company phenomenon.

“It’s certainly something we’re keeping our eye on, but we certainly have reservations about it,” Dan Bienvenue, interim chief investment officer at the pension giant, told its investment committee meeting on Monday.

State controller and board member Betty Yee asked CalPERS investment staff whether the surge in SPACs posed an opportunity, a threat or a challenge to the pension’s private equity investments.

Bienvenue said: “It is both an opportunity and a threat. It does give retail investors the opportunity to get to areas of the capital market that they weren’t able to get to. Conversely, it is an area that’s fraught with potential misalignment, potential governance issues. There are certainly challenges there.

“As far as what the future holds, if you ask the CEO of Goldman Sachs, he thinks it’s overblown. If you ask the CEO… of a European bank, they’re going all in. Probably, we are in between. So, it depends on who you ask. It’s certainly something we’re keeping our eye on.”

Steve McCourt, co-chief executive investment consultant at Meketa Investment Group, said SPACs provided another source of investment capital that “bid up the prices of private businesses”.

“On the surface this brings some retail dollars into a marketplace that traditionally was supplied predominantly by larger institutional investors like yourselves. We don’t have a crystal ball. We don’t know if the SPAC trend will be a fad or something sustaining in the markets. But certainly, in the near-term, it’s adding to the pricing pressure that we see in the private markets.”

Capital raised by US SPACs this year is set to exceed the overall capital raised in 2020 – $83.3 billion as of mid-March, compared with $83.4 billion from January to December 2020 – according to data from SPAC Research. This year is set to be an ultra-competitive environment for PE firms, with half of the capital raised for SPACs chasing the same deals as buyout shops, according to estimates from Bain & Co.

CalPERS had a $30.8 billion private equity portfolio as of end-December, representing 7 percent of the total fund, according to Meketa’s semi-annual PE performance review.

The pension’s PE portfolio, as well as other asset classes, rebounded in the second half of 2020. The PE programme exceeded the policy benchmark for both one and three-year periods at 12.5 percent and 9.2 percent, respectively. Buyouts made up the lion’s share of the portfolio at 71 percent, followed by growth (16 percent), credit (6 percent), opportunistic (5.5 percent) and other investments, including currency and stock holdings.

Sacramento-headquartered CalPERS made 46 commitments totalling $18 billion from January through December 2020, including to the $17.8 billion Thoma Bravo XIV and the $9 billion AlpInvest Secondaries Fund VII, according to documents prepared for the Monday meeting.

This story has been updated with the correct capital raising figures from SPAC Research.