CalPERS keeps focus on co-investments

Co-investments comprised nearly half of the private equity commitments made by California Public Employees’ Retirement System in 2023.

Co-investments have become a major focus for LPs who look to reap the benefits of reduced fees and carried interest. CalPERS has emphasized the important role co-investments will play in the continued revamp of its private equity program.

According to a presentation from consultant Meketa, 47 percent of the system’s investment capital deployed last year went to either direct co-investments or through customized investment accounts.

Meketa’s presentation was included in materials for the system’s next investment committee meeting scheduled for March 18. Buyouts reviewed Meketa’s presentation.

In the second half of 2023, CalPERS committed $4.9 billion to roughly 80 co-investments, the presentation said. In the second half of 2022, the system committed $4 billion to co-investment vehicles, which was then a record amount.

The system committed $750 million to a co-investment dubbed Project Quartz – the single biggest private equity commitment CalPERS made during the second half of 2023, according to the presentation.

A spokesperson for CalPERS declined to provide further comment on Project Quartz, which closed in November 2023, according to Meketa.

The net asset value of CalPERS co-investments and direct investments totaled $6.3 billion as of the end 2023, the presentation said. Returns on co-investments have outpaced the total private equity portfolio on a one-year and three-year basis.

The system was in the midst of reinventing its private equity program under the tenure of former chief investment officer Nicole Musicco, who left the post in September.

In addition to several policy changes, CalPERS also named former Kaiser Permanente private equity chief Anton Orlich to head its PE team.

According to Meketa, CalPERS committed $15 billion to private equity over each of the past two years. For comparison, the system allocated between $3 billion and $5 billion annually to private equity.

As of the end of January 2024, the system allocated 14.2 percent of its total fund to private equity, above its 13 percent target, according to CalPERS.