CalPERS cuts private equity allocation

The $277bn system lowered its target allocation to private equity while increasing its allocation to infrastructure and real estate.

The California Public Employees’ Retirement System has lowered its target private equity allocation from 14 percent to 12 percent, according to its website.

The reduction was approved at CalPERS’ board meeting earlier this week. The $277 billion system’s actual allocation to private equity stood at roughly 11 percent as of 31 October 2013.

CalPERS also lowered its target allocation for public equity from 50 percent to 47 percent. However, the system raised its target allocation to real estate investments from 9 percent to 11 percent, and raised its infrastructure allocation from 2 percent to 3 percent, according to a statement.

The reduced target allocations will lower CalPERS’ investment risk, holding the fund’s long-term assumed return rate at roughly 7.5 percent, according to pension. The new target allocations take into account the lifespan of California public employees, CalPERS said in the statement.

Last November, CalPERS senior investment officer for private equity Réal Desrochers told Private Equity International the system aimed to invest about $6 billion across private equity, including primary funds, co-investment and secondaries vehicles, during the next 12 months. Desrochers also said the system wanted to keep investing at a similar rate in the foreseeable future, while at the same time reducing its number of managers, writing bigger cheques and pursuing more co-investment opportunities. Between November 2012 to November 2013, CalPERS invested about $5 billion in the asset class.

CalPERS’s 2013 commitments included $380 million to TowerBrook Investors VI, $400 million to a separate account with The Blackstone Group’s GSO Energy Partners and $500 million to Apollo Investment Fund VIII, according to PEI’s Research and Analytics division.

At the end of 2013, CalPERS set a timeline for review of its emerging manager programme within its private equity portfolio. The system hired Cambridge Associates to review between 10 and 12 emerging managers in the portfolio “in order to identify characteristics that contribute to an emerging manager’s success”, according to pension documents. The results are expected to be delivered to CalPERS’ investment committee in March and to be included during the Emerging and Diverse Manager Spring Forum on 1 April, 2014.

The emerging manager programme received criticism recently for slashing its allocation. The programme has historically been a big supporter of emerging general partners, committing at least $10 billion to more than 300 small or minority-led firms. Recent commitments from CalPERS’ emerging manager programme include $100 million to Peak Rock Capital’s debut fund, which closed on its $700 million hard-cap in October.