CalPERS hopes to stagger capital calls in down market
The nation’s largest pension fund, the California Public Employees’ Retirement System, is reaching out to general partners to stagger their capital calls.
“We called the [private equity] partners for our planning purposes, and we are coordinating [the] timing of those [capital] calls with them,” said Patricia Macht, CalPERS spokesperson.
The Wall Street Journal
has also reported that the state pension fund has been selling stock in public companies in recent weeks to boost its cash on hand to help meet capital calls.
“We don’t comment on specific investment transactions, except to say that in down markets, we manage our cash as appropriate for the situation,” Macht said.
It’s unclear exactly how general partners might respond to requests to delay capital capitals, since they typically draw down capital only when they have deals in place, limiting their flexibility. Taking out bridge loans would be an option, but making accommodations for one limited partner could spark requests from others.
During the first half of 2008, CalPERS contributed much more to its alternative investment management program than it did in the first six months of 2007, but its flow of distributions fell. The LP’s AIM program saw draw-downs of $5.1 billion in the first half of 2008, up markedly from $3.1 billion for the same period in 2007, according to a report released at an investment committee meeting in October. But first-half 2008 distributions slipped to $2.3 billion, off from $2.5 billion in the same period last year.
Selling public equities—while tempting because of its relative ease—can create other problems for LPs by exacerbating the denominator effect, which refers to the over allocation to private equity that many institutions are now experiencing because the values of their public holdings have taken such huge hits this year. Most major stock indices across worldwide are down about 40% since the start of 2008.
“Many LPs are reducing public equity exposure for both diversification reasons and due to capital calls,” said Dan Vene of C.P. Eaton Partners, a placement agent based in Rowayton, Conn. “With the public markets down so much, and very few, if any, distributions from existing private equity managers, almost all major plans are finding themselves over allocated by a few points.”