CalPERS pays more in fees, less in carry

The US’s largest public pension decreased its overall expense costs by $170m during the fiscal year ended 30 June, up from $67m of savings last year.

The California Public Employees’ Retirement System had a 13 percent rise in net private equity management fees over the past year amid efforts by the pension to reduce investment costs.

The US’s largest public pension paid $233.8 million in net management fees across 223 private equity funds in the fiscal year ended 30 June, up from $206.5 million over 224 funds in 2015-16, according to its 2016-17 annual report published on Friday.

Its largest net fee expenditures included around $8.1 million to Blackstone Tactical Opportunities Fund C, $7.1 million to Riverstone Global Energy and Power Fund VI and $6.7 million to Advent International GPE VIII-B.

Profit sharing, or carried interest, paid dropped to $455.1 million in 2016-17, down from $489.8 million the previous year. A London-based alternatives advisor who wished to remain anonymous told Private Equity International this decline could be attributed in part to a widespread fall in distributions over the past year.

“GPs have taken advantage of good exit conditions, but we’ve had that for two years,” the advisor said.

“Distribution activity was at its peak in 2015. Anyone ready for an exit is already out the door.”

The value of capital CalPERS has committed to private equity funds has reduced by 35 percent over the past three fiscal years after limiting its general partner relationships to just 30 managers in a bid to cut costs, according to a review from board consultant Meketa Investment Group in November. It failed to meet its $4 billion commitment target for the 2016-17 fiscal year and may struggle to maintain its 8 percent interim target allocation in the long term, Meketa added.

CalPERS decreased its investment expenses by $169.9 million in 2016-17, more than double the $67 million of savings generated the previous fiscal year, its annual report noted. The latest reduction more than doubles its total investment savings to approximately $281 million since 2010-11.

The pension attributed the savings in part to “focuses on reducing cost, complexity, risk and fewer but more strategic partnerships with external investment managers”. Reductions also came through discussions with general partners, limited partners and other agencies regarding cost-effective, transparent and risk-aware portfolio management.