Private equity silver lining on CalPERS’ dreary year

The influential limited partner incurred an overall loss of 2.4 percent on its investments for the 2007-2008 fiscal year, but saw its private equity portfolio lead all allocations with a 19.6 percent return.

The California Public Employees’ Retirement System has reported a strong showing from its private equity allocation despite a $10.3 billion (€6.5 billion) drop in the pension’s overall value for the past fiscal year.

The public pension giant, one of the most influential and sought after investors in the alternative investment world, reported a 19.6 percent return from its private equity allocation, outgaining all other asset classes except one.

Those profits mitigated CalPERS’ overall 2.4 percent loss on investments made through the 12 month period ending June 30, owing primarily to the poor performance of the pension’s public equities, according to preliminary figures released today.

“It was difficult for any investor to make positive returns in stocks this past year,” CalPERS interim chief investment officer Anne Stausboll said in a statement. “Private equity returns led the way in gain.”

Despite a reduction in its public equity allocation in December, CalPERS suffered a 10.7 percent drop in its stock holdings for the year, dropping its total market value to $239.3 billion. Last June, the firm reported $249.5 billion in assets.

CalPERS' private equity returns were calculated for the year ending in March 2008, owing to a quarter time lag for reporting alternative asset values.

Beyond private equity, other CalPERS alternative asset portfolios also performed relatively well. The pension’s real estate investments yielded an 8.1 percent return, while its recently launched inflation-linked asset class, which focusses partly on infrastructure investments, returned 22.9 percent over a nine month period.

CalPERS recently released the results of a difficult first quarter that may partly explain the fund’s overall performance for the past fiscal year. Despite a p 5.3 percent gain in its alternatives portfolio, the pension lost roughly $12.1 billion (€7.8 billion) in total assets due largely to lacklustre equity market returns. That quarter-to-quarter decline is the steepest the pension fund has experienced since the 2001-2002 recession.

In December, CalPERS’ investment board significantly reduced the pension’s exposure to public markets and increased its allocation to alternatives. CalPERS currently maintains a 10.3 percent allocation for private equity, 9.9 percent for real estate, and 2.0 percent for inflation-linked assets. The fund is currently valued at $231.8 billion, according to CalPERS’ website.