CalPERS commits $600m to Carlyle funds

Confronting an increasingly overweighted private equity portfolio, CalPERS has made $920m in commitments to four private equity funds. Last week, fellow pension giant CalSTRS addressed the denominator effect while disclosing more than $1bn in fresh commitments.

The California Public Employees’ Retirement System has disclosed $920 million (€651 million) in fresh private equity commitments.

Two funds affiliated with The Carlyle Group garnered the largest investments from the $228.9 billion public pension, which committed $300 million each to Carlyle Asia Partners III and Riverstone/Carlyle Renewable & Alternative Energy Fund II.

The Washington DC-based firm’s third Asia-focused vehicle will seek control-oriented investments in public and private companies through acquisitions, spin-offs, restructurings and opportunistic strategic minority investments across Asia, according to CalPERS’ investment committee meeting agenda.

The fund will primarily focus on China, Taiwan, Korea, India, Australia, New Zealand and Southeast Asia, and is targeting a final close of $3.5 billion.

Riverstone/Carlyle Renewable & Alternative Energy Fund II is the sixth investment vehicle raised collaboratively by the two firms and the second exclusively devoted to cleantech. It will target renewable energy assets and related technologies and is seeking a $4 billion close. Carlyle/Riverstone have produced an internal rate of return of more than 50 percent on four funds since 2001.

Overall, CalPERS has $4.3 billion in fund commitments tied to the David Rubenstein-led firm.

CalPERS has also committed $221 million to Avenue Europe Special Situations, the first Europe-focused fund raised by New York-based distressed debt specialist Avenue Capital Partners, and $100 million to The Blackstone Group-affiliated GSO Capital Opportunities fund.

The €1.5 billion Avenue Europe fund will target senior secured and unsecured debt of distressed companies across Western Europe, with some flexibility to invest in other jurisdictions.

GSO Capital Partners, purchased by Blackstone in January, will focus on providing junior capital to companies in connection with leveraged buyouts, acquisitions, recapitalisations and growth financings.

From its real estate allocation, CalPERS invested $200 million in GI Partners fund III and JER Latin America Fund I, opportunistic funds with net expected returns of more than 20 percent.

CalPERS also revealed that its actual allocation to its alternative investment program had reached 10.5 percent, above its target allocation of 10 percent but still within the target range of 7-13 percent. Earlier this summer, CalPERS staff expressed concern that the pension was becoming overweighted towards private equity and may have to alter its allocation policy because of a steep drop in its overall assets under management, a phenomenon known as the “denominator effect”.

The $161 billion California State Teachers’ Retirement System, which has had its assets shrink by $10 billion over the last half year, has also recently cited the denominator effect as a broad trend affecting institutional investors’ commitments to private equity. However, investment committee documents did not discuss a possible change to the pension's own asset allocation mix.

In its most recent round of disclosures, CalSTRS committed $500 million to TPG Financial Partners; $350 million to Apollo Investment Fund VII; and $300 million to the Riverstone/Carlyle fund.

CalSTRS also reportedly plans to invest $250 million to Blackstone’s latest buyout fund, according to the Wall Street Journal. That represents a steep decrease from the $1.7 billion it committed to Blackstone’s fifth buyout vehicle, though the private equity firm remains one of CalSTRS' most significant relationships: the pension said in its sem-annual private equity performance report that it has total exposure of $2.17 billion to Blackstone funds. That is second only to TPG, to which the pension has $2.4 billion of exposure to its funds as of 31 March 2008.