CalPERS concentrates on co-investments in first quarter

  • CalPERS commits $260 mln to co-investments in Q1
  • Total surpasses 2014 total of $219 mln
  • Pension is yet to commit to traditional PE in 2015

The California Public Employees’ Retirement System co-invested $260 million alongside private equity fund managers through the first three months of the year, surpassing the $219 million it allocated to co-investments in 2014, according to retirement system documents.

The $305.2 billion retirement system did not commit to a traditional commingled private equity fund during the first quarter, according to pension documents.

Co-investments play an increasingly important role in CalPERS’ strategy to manage its private equity program’s costs, which have gone down steadily over the last four years, according to pension documents and investment committee meeting recordings. Managers typically do not charge management fees or carry on co-investments, thereby reducing the cost of the investment and, in theory, driving up net returns.

“We think that we can improve our investment performance and reduce our costs by expanding these programs within the portfolio,” CalPERS Senior Portfolio Manager Scott Jacobsen said during the pension’s Dec. 15 investment committee meeting. “We will continue to focus on reducing expenses wherever we can.”

The retirement system’s co-investment platform has been especially active since September, when former California State Teachers’ Retirement System portfolio manager Mahboob Hossain joined CalPERS to lead the program. Shortly afterward, CalPERS secured a $104 million co-investment stake in The Carlyle Group’s acquisition of Acosta Inc.

More recently, CalPERS committed $50 million to a co-investment fund managed by Tailwind Capital Partners in March, according to May 18 meeting materials. Earlier this year, CalPERS allocated $210 million across co-investment vehicles managed by Blackstone Group and Onex Partners.

The retirement system typically co-invests alongside its existing fund managers. The pension committed to Onex’s and Tailwind’s respective flagship funds last year. CalPERS is a longtime investor in funds managed by Blackstone Group and Carlyle.

The retirement system valued co-investments and direct investments in its portfolio at $1.3 billion as of June 30, 2014, according to Dec. 15 meeting materials.

CalPERS spokesman Joe DeAnda did not respond to questions about the pension’s investment strategy.

CalPERS had a 9.6 percent allocation to private equity as of March 31. The pension pegged the size of its allocation at $28.9 billion, according to May 18 meeting materials.