The $198 billion California Public Employees’ Retirement System said in mid-December that it is exploring ways to cut expenses, such as by negotiating reduced fees with private equity firms, even as the asset class continued to provide the nation’s largest pension fund with a respectable return over the long haul.
Although declines in real estate and private equity continue to drag down CalPERS’s overall performance, with the private equity portfolio down by more than 24 percent for the 12 months ended June 30, the asset class returned 7.4 percent in the second quarter. In contrast, the limited partner’s real estate assets fell by more than 30 percent for the quarter and 49 percent for the year ended June 30. Since 1990, the private equity portfolio has generated $14.4 billion in profits for CalPERS.
In a prepared statement, Chief Investment Officer Joseph Dear said that the pension fund is “reviewing our relationships with our private equity partners that can lead to reduced fees, better alignment of interests and more mutually beneficial long-term relationships.” He went on to express confidence in both real estate and private equity by noting the “significant write-ups in our private equity investments that are expected to increase performance in the coming months. Over time, our real estate and private equity investments will fuel our portfolio in future years when we see a full recovery in the financial markets.”
In May, CalPERS raised its target for corporate buyout and venture capital investments to 14 percent from 10 percent, with a range of 9 percent to 19 percent. The target allocation for real estate remained unchanged at 10 percent.
In other news, the pension fund’s board voted to sponsor state legislation requiring placement agents who solicit public pension fund business to register as lobbyists. “This legislative proposal goes to the heart of recent investigative and enforcement activities in New York that have raised questions about shadowy involvements by placement agents in public pension plan investments, the fees they receive from the firms that hire them and the services they provide for those fees,” said CalPERS Investment Committee Chair George Diehr in a prepared statement.
Meantime, CalPERS recently chose Meketa Investment Group as its first lead consultant for the LP’s infrastructure program. CalPERS has already committed $700 million to an infrastructure program that has a target allocation of 1.5 percent, with an upper range of 3 percent. Initially Meketa Investment Group proposed an annual base fee and itemized project costs of $125,000 but then reduced that by 15 percent to meet the state’s directive to lower contract costs. The new proposed annual base fee is $106,250.