CalPERS’ PE returns fall short of benchmark

The $351bn pension fund’s results in the asset class underperformed the benchmark by 2.5 percentage points.

The California Public Employees’ Retirement System’s private equity portfolio fell short of its benchmark over the past 12 months ending on 30 June, according to the $351 billion pension fund.

The US’s largest public pension reported a preliminary 16.1 percent return for private equity during the 2017-18 fiscal year, 250 basis points below its benchmark index. The pension generated an 8.6 percent return across its total portfolio, down from 11.2 percent the previous year.

In a video, chief investment officer Ted Eliopoulos credited “strong performances” from infrastructure, real estate and public and private equities. Infrastructure was the pension’s best performing asset class, generating a preliminary 20.6 percent return for the year, 1,416 basis points above its benchmark index.

“While we’ve seen some expected volatility in the markets, our diversified global portfolio has allowed us to exceed our expected rate of return of 7 percent,” Eliopoulos said. “While we’re pleased with the returns, we’re always focused on the long-term, bigger picture.”

CalPERS noted that private equity returns were based on market values as of 31 March. Its portfolio delivered a 13.9 percent return last year, which was 6.4 percent under its benchmark.

In May CalPERS announced plans to launch a direct private equity programme in which its total annual deployment for the asset class will reach up to $13 billion. At an investment committee meeting on 18 June the pension discussed changes to its PE programme including scrapping the direct investments category and increasing the allocation target and range for buyouts, according to documents prepared for the gathering.

The value of capital CalPERS committed to private equity funds fell by 35 percent over 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.

Eliopoulos, who joined CalPERS in 2007, announced in May that he will leave the pension fund next year. He said in a statement that he will stay on as chief investment officer until CalPERS finds his replacement and will assist with the transition.

– Alex Lynn and Jordan Stutts contributed to this report.