CalPERS Exec Warns of Bubble

Mark Anson, chief investment officer for the California Public Employees’ Retirement System (CalPERS), warned last week that the U.S. private equity market could be building toward a bubble.

The comments were made during a conference in Geneva, with Anson pointing to a confluence of LBO fund capital overhang, rising interest rates and increased competition from hedge fund managers.

Such conference chatter normally wouldn’t make it past the Chillon Castle, but Anson has exceptional clout as CIO of one of the world’s largest private equity investors (CalPERS is second behind AlpInvest). CalPERS reported $21.1 billion in private equity commitments, as of June.

“The current overhang of leveraged buyouts committed but not invested is $182 billion [year-end 2003],” Anson reportedly said at the conference. However, recent figures from Thomson Venture Economics (publisher of PE Week) show an overhang of about half that, or $99 billion, for the buyouts and mezzanine market, with a $206 billion overhang for the overall private equity industry (which includes venture capital and other sub-asset classes).

No matter how it’s sliced, it’s a lot of excess capital. And Anson’s concerns are likely justified, particularly with several LBO firms raising new mega-funds. What is strange, however, is that Anson has never aired his “bubble” views in front of the CalPERS board, nor formally suggested a significant reduction in CalPERS’ private equity allocation. Instead, the system has stayed active, recently approving large fund commitments for The Carlyle Group ($300 million), Oak Hill Capital Partners ($75 million) and Parish Capital ($50 million).

Anson was unavailable for comment as PE Week went to press, and a spokeswoman acknowledged that CalPERS had been caught a bit off-guard by the comments. Also not responding to a request for comment was CalPERS alternative investment chief Leon Shahinian.