CalPERS considers 4% private equity boost

Investment staff will recommend the US pension giant increase its target allocation to private equity to 14%. It currently has 11.7% of its assets, or $21bn, invested in the asset class.

The $180 billion California Public Employees’ Retirement System looks set to raise its target allocation to private equity again, this time to 14 percent. The pension would also assign an acceptable range of 5 percent surrounding the target, meaning CalPERS’ private equity portfolio in respect of total assets could represent as little as 9 percent or much as 19 percent.

Currently its target allocation to private equity is 10 percent, with an acceptable range of +/- 8 percent.  The acceptable range had been increased from 5 percent as CalPERS, like many US pensions, struggled to control the denominator effect, or the twin forces of sinking assets under management and shrinking distributions resulting in an overweighted alternatives exposure.

Its actual allocation as of 28 May stood at 11.7 percent, representing roughly $21 billion.

CalPERS staff is officially recommending the 4 percent increase at an investment committee meeting next week, following an asset allocation workshop in May that reviewed various models as to liquidity and risk profiles. The increase to private equity would be largely offset by a reduction in global equities.

Should the increase be approved, it would mean CalPERS has more than doubled its target allocation to the asset class since 2007, when its target stood at 6 percent.

The pension’s asset allocation mix is due to be reviewed again in 2010.