CalPERS eyes big boost in private equity

The system’s desire to overhaul its private equity program continues even as it awaits a new chief investment officer.

California Public Employees’ Retirement System is considering increasing its private equity target to 17 percent from 13 percent – a major increase that reflects the system’s continued interest in private equity even as it awaits the selection of a new chief investment officer.

The nation’s largest public retirement system has been reinventing its private equity program over the past few years. A potential hike in its private equity target could serve as a gamechanger for the industry by adding billions of dollars in a fundraising environment still starved for liquidity.

CalPERS’ investment staff proposed a potential hike at its March 18 investment committee meeting, which Buyouts watched. The investment committee did not take action on the proposed hike by press time.

Investment staff also recommended an increase of its private debt target allocation to 8 percent from 5 percent. If approved, the system would reduce its public equity target from 42 percent to 37 percent and fixed income from 30 percent to 28 percent.

The investment staff’s recommendation came as part of the system’s mid-cycle review of its asset-liability management program.

Anton Orlich, who heads the $483 billion system’s private equity program, said the system’s increased focus on co-investments would add 1 percent per year to the target allocation.

CalPERS committed nearly $5 billion to co-investments in the second half of 2023, board documents noted.

According to Interim Chief Investment Officer Dan Bienvenue, the system has been committing $15 billion to private equity in recent years, with a significant amount to no-fee co-investments. Bienvenue said the system would retain its $15 billion pace to reach the 17 percent target.

“If we stick to 13 percent, we’ll have to back off how much we allocate. Our primary fund investments will stay the same, but the amount we commit to co-investments will fall off,” Bienvenue said.

CalPERS has also increased its interest in growth equity and venture capital in recent years, Orlich said.

According to Orlich, the system currently has placed 60 percent of its private equity portfolio to buyouts and 40 percent to growth equity and venture recently.

In the fall of 2022, CalPERS had a “run rate” of 80 percent to buyouts and 20 percent to growth equity and venture, Orlich said.

Correction: An earlier version of this report used an incorrect percentage for the 2022 “run rate” allocation to growth equity and venture. The report has been corrected.