Side Letter: CalPERS nets 43.8%; Ex-CIO Meng resurfaces; PE gets supersized

CalPERS has reported an enormous PE return after its pivot to co-investments and growth strategies. Plus: The pension's former CIO has resurfaced at Franklin Templeton and SWFs are flocking to China. Here's today's brief, for our valued subscribers only.

They said it

“It’s relatively easy for someone to become a software investor in 2014 and prove in 2017, 2018, 2019 that they are making 2x or 3x their money. Candidly, my dog could’ve invested in PE software in 2018 or 2017 and made some returns.” 

Speaking in a Bain & Co podcast, Nic Humphries, executive chairman of Hg, says GPs must prove to LPs they can make money through all cycles and vintages, and with low volatility.

Just happened

CalPERS wins big
California Public Employees’ Retirement System, the world’s seventh largest PE investor according to PEI‘s Global Investor 100 ranking, has enjoyed a stellar year in the asset class. The $469 billion pension on Monday reported a 43.8 percent net PE return for the year ending 30 June. Public equities returned 36.3 percent, and the overall portfolio returned 21.3 percent.

Though many institutions are likely to report decent annual performances a year on from the pandemic dip, CalPERS may also have benefitted from its recent pivot towards co-investments and diversification into growth investing. This forms part of a new long-term approach to the asset class under PE head Greg Ruiz and head of PE investments Yup Kim, details of which the latter shared via LinkedIn earlier this year.

Meng resurfaces
Speaking of CalPERS, Ben Meng, the pension’s former CIO, has resurfaced at Franklin Templeton. Meng will help to expand the asset manager’s PE, VC and alternatives offerings across Asia-Pacific in his role as executive vice-president and regional chairman, per a statement. Meng resigned from CalPERS in August 2020 after less than two years in the job, the reasons for which Side Letter explored in greater detail here.

Supersize PE
PE is more than three times as busy this year in terms of fundraising, deals and exits than it was a decade ago, according to Bain & Co’s 2021 H1 Global PE Update. Here are some key stats from the report, visit Private Equity International later today for more detail:

  • PE has crossed $3 trillion in dry powder for the first time, of which $1 trillion is for buyouts.
  • Annual buyout deal value (which has averaged between $500 billion-$600 billion in the last five years) is expected to exceed $1 trillion by year-end.
  • Also a first: average deal size, including add-ons, is now greater than $1 billion.
  • Tech accounted for one in every three deals done in the first six months of 2021.
  • Fifty-four percent of buyout capital raised in H1 came from funds larger than $5 billion.

Essentials

Sovereigns flock to China
China is seeing increased interest from sovereign investors and central banks, according to the ninth annual Global Sovereign Asset Management Study from Invesco.

The study found that, over the next five years, 40 percent of sovereigns plan to increase allocations to China, with three-quarters of them attracted by the prospect of good local returns and 57 percent seeing the country as an important portfolio diversifier. China is expected to be the beneficiary of both new allocations and capital being diverted from North American and European allocations.

Central banks have also continued increasing their allocations to Chinese assets as they diversify away from the US dollar. They had average allocations of 2.3 percent to China at the end of last year versus 1.9 percent a year previously. More than half of central banks (57 percent) now hold renminbi assets compared with 40 percent in 2018.


Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Andy Thomson.