The California Public Employees Retirement System (CalPERS) this month reportedly agreed to purchase a minority stake in The Carlyle Group Inc. as part of an agreement to invest up to $850 million with the Washington, D.C.-based private equity firm. In addition, the public pension fund also agreed to purchase a minority stake in Texas Pacific Group.
Calls made to CalPERS were not returned by press time.
CalPERS will committ $175 million for a 5% stake in the firm, which would value the firm at approximately $3.5 billion, for a share of Carlyle’s liquidity in current and future transactions. CalPERS also agreed to invest $250 million in other Carlyle funds with an option to invest$425 million over the next two years. Salomon Smith Barney Inc. and J.P. Morgan Chase and Co. advised CalPERS on the transaction.
Carlyle’s relationship with CalPERS dates back to 1996 when the pension fund made an initial commitment of $80 million in a Carlyle fund. More recently, CalPERS allocated $150 million last June to Carlyle Partners III and also committed $75 million to a Carlyle Asia Fund.
Wanting to expand its relationship with TPG as well, the pension fund also committed $60 million for more than 10% in a new venture capital offering by TPG. In addition, CalPERS is also investing in three TPG vehicles including $325 million in a venture fund; $75 million in a “crossover” fund designed to buy public and private securities in technology companies; and $25 million in a TPG venture with Kleiner Perkins Caufield & Byers and Bain & Co. to develop Internet businesses for established companies. CalPERS in 1999 invested $150 million in TPG Fund III.
Partners at TPG declined to comment for this article.
CalPERS, the biggest public pension fund in the U.S., has a history of buying equity stakes in its partnerships. Last year, the pension fund purchased a 10% stake in Thomas Weisel Partners. The pension fund also purchased a 15% stake in Arrowstreet Capital LP, whom it hired to manage its international stock.
However, not all pension funds may be jumping on the CalPERS bandwagon. The California State Teachers’ Retirement System reportedly rejected a similar deal with another private equity firm because valuations were too expensive.