Shaping perceptions

Christopher Witkowsky on the importance of a recent (and unusual) CalPERS rebuttal to a Reuters story.

It takes guts to invest private equity, regardless of the market cycle. Your money is locked up for years and you must trust that it will be managed well. But until recently data showed that for investors who chose the right managers, private equity could be extraordinarily rewarding. Thus, many institutional investors increasingly turned to the asset class in recent years.

The California Public Employees’ Retirement System, for example, in June increased its target exposure to 14 percent from 10 percent of its total investment portfolio.

That increase was one of many moves highlighted in a recent Reuters article that had the effect of eviscerating the public pension and its former chief investment officer, Russell Read, for focusing CalPERS on “riskier” investments like private equity and commercial real estate during Read’s 2006 to 2008 tenure.

In response, CalPERS made the unusual move of issuing a press release refuting certain facts in the article, namely that its private equity consultant Wilshire Associates had warned CalPERS about the riskiness of its private equity portfolio, yet the pension continued to increase its exposure anyway.

“Wilshire supported the increase to private equity and Reuters has taken information provided to it out of


context. It is not uncommon for staff and consultants to be of differing view points, such as when the consultant and CalPERS expressed differing views on the risk related to the asset classes of infrastructure, commodities and stocks,” CalPERS said in the statement. “Read and Wilshire agree the representations regarding Wilshire’s advice to CalPERS in the Reuters story are false.”

Like many institutional investors, CalPERS has seen its portfolio value drop dramatically in the wake of the economic crisis, but as the Reuters article fails to point out, private equity has consistently been among the better performing asset classes for the pension – both during and after Read’s tenure.

As of 31 March, the one-year returns for private equity were -30 percent, which topped the one-year returns for the S&P 500, MSCI Europe and MSCI Emerging Markets, which stood at -38.1 percent, -49.9 percent and -47.1 percent, respectively, according to data provider Preqin.

Private equity professionals have long complained of being misunderstood and unfairly vilified by mainstream media. PEO has long argued that one way for private equity firms to mitigate such coverage is to work harder at telling their own story, framing issues from their points of view.

CalPERS has done just that. Not just by issuing a press release related to the recent Reuters article, but by launching its own website,, dedicated to telling CalPERS’ side of things.

“There’s a lot of information and misinformation about CalPERS,” Pat Macht, a CalPERS spokesperson, said in a statement. “We hope this site will help separate the facts from fiction and provide some education, insight and clarity to these issues.”

The site includes video interviews with CalPERS executives, including a video in which chief investment officer Joseph Dear talks about the rise in the value of the pension’s assets, and says “we can’t forget the consequences of the failure of the regulatory system and its contribution to the devastating losses that all investors suffered”.

It’s good to see CalPERS taking such a proactive stand, so long as the pension also continues to interact with external media, as well.

One can hardly blame CalPERS for wanting to tell its own story, which in this case is one of an investment programme that was having success until the entire financial world experienced near-Armageddon. CalPERS likely will continue to have success as the markets continue to heal and grow and pull out of the recession – let’s hope both the pension and generalist media outlets cover that story.

If institutional investors with significant alternatives programmes are branded “reckless” while those without alternatives are branded “responsible”, the effects will be felt by the entire alternatives industry.