CalPERS deployed $17bn last year as it ramps up PE activity

The nation’s largest pension system continues the overhaul of its private equity portfolio.

California Public Employees’ Retirement System increased its focus on customized investments and co-investments in the second half of last year as the nation’s largest pension system continued its private equity revamp.

CalPERS chief investment officer Nicole Musicco is leading the overhaul of the $442 billion system’s private equity portfolio. She believes the system endured a “lost decade” of returns by underallocating to the asset class. The system’s strategy includes prioritizing co-investments, vehicles where CalPERS is the sole investor and direct investments.

A presentation from adviser Meketa detailing CalPERS’s private equity portfolio was included in the advance agenda for the system’s next investment committee meeting scheduled for March 13. Buyouts reviewed the presentation.

CalPERS made $17 billion in private equity commitments via 66 investments in 2022, according to the presentation. The system made 31 commitments totaling $7.5 billion in the second half of the year.

According to the presentation, the system made $4.8 billion, or 64 percent, of its commitments in the second half of 2022 to co-investments and customized investment accounts, described on the system’s website as an investment structure where CalPERS is the only investor.

Some examples of customized investments include a $600 million commitment to a Thoma Bravo fund named Project Quail Opportunities. Thoma Bravo filed a Form D with the SEC for Project Quail Opportunities last year.

CalPERS also committed $300 million to a customized investment named Timber Coast Private Opportunities, a buyout fund managed by Arlington Capital Partners, according to a Form D filed with the SEC.

According to Meketa’s presentation, CalPERS’s customized investment accounts have a total NAV of $10.1 billion.

CalPERS has a 13 percent target allocation to private equity with an actual allocation of 11.4 percent, according to Meketa.

In addition to investing more in private equity, the system also wants to push further into direct investments, having formed an internal committee to consider those deals. CalPERS also hired Anton Orlich to head its private equity program in 2022.

Musicco touted Orlich’s direct investing experience at an investment committee meeting in November.

The system’s private equity portfolio had a net asset value of $50.2 billion as of December 31, 2022, according to Meketa’s presentation. The portfolio fell in value by 2.3 percent over the past year, according to the presentation.

Growth and expansion was the worst performing private equity strategy over the past year, having dropped by 10.8 percent in value, according to the presentation. Venture capital ranked as the best performing asset class, gaining 3 percent in value over the year.