CalPERS eyes ‘unique’ vehicles

With some $22bn in uncalled commitments, the California pension will work to enter customised, low-fee partnerships and co-investment vehicles with select GPs.

The California Public Employees’ Retirement System is planning to create “unique structures with select general partners” that charge lower fees and offer more customised portfolios.

The $200 billion pension, among the largest backers of private equity in the world, also will build up its co-investment capability to invest alongside the “highest capability” general partners to gain additional exposure to “attractive companies at lower costs”, according to presentation materials released recently.

CalPERS also is looking to “streamline and prioritise” its relationships with fund managers through June 2010, the pension said.

CalPERS desire for more bespoke investment vehicles dovetails with the recent moves of large investors toward separate accounts. One major general partners to have established a “unique”, low-fee structure with a limited partner is Apollo Global Management, which manages a $750 million account with the South Carolina Retirement System and has announced it is exploring the launch of other similar vehicles.

Institutional investors have long committed to private equity funds through customised separate accounts. The Oregon Investment Council recently set up a $300 million separate account with Hamilton Lane to invest internationally.

However in the wake of the financial crisis, some limited partners are reassessing their private equity programmes and expressing a desire for specialised direct investment accounts that do not feature the fee structures typical of traditional private equity partnerships.

New Jersey’s $65 billion pension has eight separate accounts with various managers targeting both funds and direct investments.

The materials released relate to a CalPERS board discussion on the future direction of its Alternative Investment Program at its investment committee meeting Tuesday. The programme, according to pension documents, has $22 billion of uncalled commitments that it expects will be drawn down over the next three to four years. 

For future commitments, the pension said it would work to implement guidelines created by the Institutional Limited Partners Association.

CalPERS’ target allocation to private equity is 14 percent, and its actual allocation is 12 percent. The pension has total exposure to private equity, between funded and unfunded commitments, of $46 billion. The market value of its portfolio is $24 billion.

Part of the challenges the pension faces in the future is a heavy weighting to 2006 to 2008 mega-buyout funds, CalPERS said. The pension also has “limited ability” to re-balance its portfolio due to “depressed secondaries market conditions”.