Two of the US’s largest pension funds look likely in the coming months to increase their private equity investments. These are the California Public Employees’ Retirement System (CalPERS), the largest pension fund in the US, and the California State Teachers’ Retirement System (CalSTRS), which ranks second.
CalSTRS’s board is due to meet on September 7 to discuss increasing the exposure of its fund to private equity. A draft proposal to the board has already recommended that CalSTRS raise its private equity investments. Of CalSTRS’s US$142.7bn in assets – most of which include US stocks – private equity makes up 5.7%. 18.8% of CalSTRS’s private equity portfolio has been invested abroad outside of the US.
CalSTRS has been working on its latest asset allocation plan for the past six-to-seven months. How much it invests in stocks, fixed income, real estate, cash and private equity depends on market opportunities, risk mitigation and meeting average annual returns of 8%.
CalPERS, with $208bn worth of assets, is also in a strong position to raise its private equity investments from a current 5.4% or $11.2bn of its overall portfolio. CalPERS has long-term relationships with about 150 private equity partners and more than 415 funds.
There is a possibility that CalPERS’s board will decide this year – a year earlier than planned – on the next asset allocation for its investment portfolio. It presently has a 9% ceiling set for private equity investments