CalPERS sees 7.4% rebound in private equity in Q3

Joseph Dear, CalPERS chief investment officer, said private equity investments will ‘fuel our portfolio in future years’.

The $200 billion California Public Employees’ Retirement System’s private equity portfolio – its Alternative Investment Management programme – rebounded in the third quarter by about 7.4 percent.

The AIM portfolio, with a market value of $22.4 billion, had declined 24.6 percent for the year ended 30 June, according to CalPERS’ pension documents.

CalPERS, which began investing in private equity in 1990, has put faith in the asset class, ratcheting up the allocation of its total portfolio to private equity to 14 percent in June. The actual allocation to AIM is 11.4 percent, according to the pension’s quarter report.

The AIM programme has underperformed the total fund, CalPERS said in pension documents, but “over longer periods it has added value”. AIM has outperformed its objectives for the three-year, five-year and 10-year periods, CalPERS said in the documents.

“We have seen significant write-ups in our private equity investments that are expected to increase performance in the coming months,” the pension’s chief investment officer Joseph Dear said in a statement. “Over time, our real estate and private equity investments will fuel our portfolio in future years when we see a full recovery in the financial markets.”

CalPERS has also initiated a major review of its private equity holdings, including looking over fees paid by its fund managers to placement agents. The pension also is reviewing its relationship with a long-term partner, Apollo Management. The review could lead to a reduction of fees, Dear said.

CalPERS also is restructuring its real estate investments. The pension’s real estates assets declined in value by more than 30 percent in the third quarter, and 49 percent for the one-year period ended 30 June.

“We have taken a number of steps in our real estate portfolio to reduce leverage, reduce risk and reposition our investment partnerships for long-term growth,” Dear said.