CalPERS increases commitments in 2011

After two years of significantly lower commitment levels to alternative investments, the pensions system ramped up its commitment pace this year to about $1.8bn as of 30 September, and has chosen managers like Blackstone, GSO and Oaktree.

With about $14 billion in uncalled commitments overshadowing its alternatives programme, the California Public Employees’ Retirement System has put the brakes on making new pledges to private equity managers over the past few years.

But so far in 2011, the $222 billion pension system has committed more to alternatives than it has since 2008, according to a report from CalPERS consultant Pension Consulting Alliance presented to the board this month.

This year, the pension system has committed $1.8 billion to private equity, compared to just $700 million last year, and $1 billion in 2009. However, that commitment rate is well under the levels prior to the collapse of Lehman Brothers. In 2008 the system’s AIM programme made a total of $11.1 billion of commitments, $14.2 billion in 2007 and $9.6 billion in 2006.

The bulk of the commitments in the credit bubble years were to mega-funds, exposure that CalPERS has been working to pare down through secondary market sales over the past few years. The system sold a chunk of its private equity interests to Alpinvest earlier this year.

It’s not clear exactly what managers the system committed to this year, though as of 30 September, the pension system had committed to nine funds considered 2011 vintages. CalPERS committed $150 million each to Avenue Special Situations Fund VI, Birch Hill Equity Partners and Wellspring Capital Partners V; $500 million to The Blackstone Group’s sixth fund; $250 million to GSO Capital Opportunities Fund II; $200 million to Oaktree Opportunities Fund VIIIb; $100 million to Francisco Partners III; $300 million to Hellman & Friedman’s seventh fund and $25 million to the WCM GENPAR V fund.

CalPERS has made some significant changes to its alternatives programme over the past year, hiring an experienced limited partner, Réal Désrochers, from sister pension the California State Teachers’ Retirement System.

Last year, the system also re-designated asset classes to break the various investment strategies into five major groups according to how they function in high or low growth markets and the prevailing inflation environment.

Private equity was paired with public equity stocks into the “growth” group that provides the pension with exposure to rising markets and accounts for about 63 percent of the portfolio, under the new designations.