CalPERS eases concentration limits on recent fund pledges

California Public Employees’ Retirement System’s investment staff has started to take advantage of policy changes made to the system’s private equity program last year.

The system made three commitments under the policy approved last year that allows CalPERS to hold up to 35 percent of the LP share of a fund, according to Meketa, the system’s investment consultant.

Departing CIO Nicole Musicco focused much of her tenure on reshaping the $462.8 billion system’s private equity program, which included measures that make it easier for staff to make commitments without management and investment committee approval.

Staff has taken advantage of the changed policies, according to a presentation included in board documents for CalPERS’ November 18 investment committee meeting. Buyouts reviewed the documents and watched a broadcast of the meeting.

In November 2022 the investment committee approved policy changes that hiked the dollar amount of individual commitments staff can make to funds, co-investments and customized individual accounts without management or investment committee approval.

Investment staff made commitments to two funds, one co-investment and two custom accounts using this new flexibility since the policy changes were approved, Meketa said.

The nation’s largest retirement system has also eyed co-investment opportunities, which many LPs pursue as a way to invest directly into assets and reduce fees.

According to the presentation, 41 percent of the system’s investment capital – roughly $6.4 billion – has been deployed to co-investments from June 2022 to June 2023.

The value of the system’s private equity portfolio stood at $59.7 billion as of the end of June, the presentation said, a drop in value of 2.3 percent over the past year, according to Meketa.

At the investment committee meeting, Meketa co-CEO and managing principal Steve McCourt said much of the one-year performance was caused by high valuations in 2020 and 2021.

“A lot of the compression of the last year simply reflects the equalization of valuations across a lot of asset classes,” McCourt said.

The system’s investments in growth equity, down by 12.8 percent, and venture capital, down 20.7 percent, fared the worst over the past year, according to the presentation.

In the past three years, CalPERS’ PE portfolio gained 19.5 percent in value, according to the presentation, with buyouts the best performing strategy over that time, having posted a 21.5 percent gain in NAV.

CalPERS contributed $2 billion more in capital than it received in distributions in the second quarter of 2023, other committee documents showed.

The system’s current allocation to private equity hovers just below the system’s 13 percent target, according to Meketa.