CalPERS lowers PE allocation, again

The pension system has reduced its target allocation to private equity for the second time this year.   

After adjusting it private equity target allocation from 14 percent to 12 percent earlier this year, the California Public Employees' Retirement System has further reduced its allocation, introducing an interim target of 10 percent. 

The reduction is in response to unexpected level of returns from the private equity portfolio and is intended to give staff more flexibility as market conditions and a lack of quality opportunities make meeting the previous target unlikely. Staff has additional flexibility of plus or minus 4 percent, according to Joe DeAnda, a spokesman for CalPERS. Private equity investments currently make up 10.8 percent of the CalPERS portfolio.  

“It’s not realistic or really even feasible for staff to swing the portfolio that in a short amount of time, so the interim targets give the staff a little more flexibility and breathing room,” DeAnda told Private Equity International. “Investment staff also took a look at the portfolio and came to the conclusion it was a good time to de-risk given market conditions so they have moved more into fixed income. We also have capital returning to us from our private equity investments which is positive, and that money is going back into the portfolio and into public equities.”   

Reflecting that reality, the interim target for global equity is up to 51 percent with an additional range of plus or minus 7 percent. The approved policy target for global equity is 47 percent.  Global fixed income has both an interim and policy target of 19 percent.  

“We still think a 7 percent return is feasible, but we want to be realistic about where the market is right now,” DeAnda said.