CalPERS battles perceived disinterest in emerging managers

California Public Employees’ Retirement System is battling the perception that its investment division’s emerging-manager program lacks verve.

“We need to do more bragging. There’s a lot here we need to talk about, and part of that is overcoming the [impression] that we have not been embracing the space as enthusiastically as we can,” said Clinton Stevenson, who was tapped to lead the $349.43 billion retirement system’s investment management engagement program in March.

Stevenson’s comments came during a scheduled review of the retirement system’s emerging-manager program, which spans several initiatives across different investment strategies.

Last year, CalPERS announced plans to commit as much as $4 billion to emerging managers by 2020, including up to $500 million for private equity firms raising their first or second institutional fund.

With California State Teachers’ Retirement System, CalPERS also hosted a day-long forum for new asset-management firms across a variety of strategies.

Even so, staff and members of the board noted a perception in the market that CalPERS’s emerging-manager program is sometimes overshadowed by those managed by CalSTRS and other institutional investors.

Speaking at the board’s Dec. 18 investment-committee meeting, Board Member Theresa Taylor said she’d heard many emerging managers “have decided to go through CalSTRS rather than CalPERS because it’s easier, which I hate to hear,” eliciting laughter from those in attendance.

Responding to Taylor, Stevenson said he’d heard the same feedback.

“[I] think we have a perception problem,” he said, adding he’d “heard the same comments that … we’re not as enthusiastic about this program.”

Interest in small and emerging PE managers has ticked up in recent years as limited partners have sought to diversify their portfolios across different investment strategies and market segments.

CalPERS’s private equity emerging-manager program, which is managed primarily by GCM Grosvenor through fund-of-funds structures, includes exposure to 222 firms, according to a staff presentation.

CalPERS also has a “Transition Manager Program” for firms that outgrow the parameters of its emerging-manager program. For PE, the transition program applies largely to firms raising their third through sixth institutional funds.

The transition program has been used to make commitments to funds managed by Clearlake Capital, Siris Capital Group and Valor Equity Partners.

In addition to reviewing its emerging-manager program, CalPERS approved a new asset-allocation mix at its Dec. 18 board meeting. Its 8 percent allocation to private equity remains unchanged from its previous strategic mix, while its allocations to global equity and fixed income grew. (See chart.)

CalPERS Asset Allocation
Asset Class	New Mix	Interim Mix (set in Sept. 2016)
Global Equity	50%	46%
Private Equity	8%	8%
Fixed Income	28%	20%
Real Assets	13%	13%
Inflation Assets	0%	9%
Liquidity	1%	4%
Source: CalPERS

Action Item: For more on CalPERS, visit www.calpers.ca.gov