CalPERS considers alternatives to PE model

The US public pension plan is considering investing in a special purpose vehicle to make private markets investments, bypassing external general partners.

The California Public Employees' Retirement System is exploring new ways to invest in private equity in the future.

CalPERS' chief investment officer, Ted Eliopoulos, told Bloomberg Television the pension was exploring ways to bring some of its private markets investment programmes in house to save on costs, as it has with its equities and fixed income programmes.

This had not happened yet because “private asset classes pose a challenge, because they are local businesses”, he said.

“We are looking at other changes to achieve the objectives that the Canadians [whose large pensions have established direct private markets investment capabilities] have without going to a completely direct model,” he continued.

“We are looking at whether or not we could create or invest in a private operating company that could in turn build out this investing capacity. It would be more indirect but it would be a special purpose vehicle that could build out all of those capacities.”

A spokeswoman for the California pension plan told PEI that it was still “early in our process of evaluating these alternative approaches”, and that CalPERS was “committed to continued investment in private equity, including through the traditional commingled fund model.”

Eliopoulos told the pension plan's board in November that it was mulling taking a more direct approach to private equity investing.

CalPERS' external managers received $539 million in profit sharing and $252.2 million in net management fees during the fiscal year ended 30 June. While bringing investment capacities in house could help reduce such fees and expenses, matching market-rate compensation for private equity talent remains a challenge, Eliopoulos told Bloomberg.

CalPERS' plans remain in the very early stages, however, as noted by a CalPERS spokeswoman. “We continue to research and evaluate a variety of alternative approaches to investing in private equity,” she said. “As details emerge over the next few years we expect to provide that information to our board and the public.”

The $302 billion US public pension has an 8 percent target allocation to private equity that currently stands at 8.7 percent.