Already the largest private equity investor in the world, the California Public Employees’ Retirement System (CalPERS) may pump another $1.35 billion into the market over the next three to five years.
The Sacramento-based pension fund currently allocates 6% of its $135 billion portfolio to private equity investments. At its investment committee meeting next week, the board is expected to approve a change to the fund’s asset allocation mix that will raise its private equity target by one point to 7%.
CalPERS’ private equity portfolio now includes $16 billion worth of active commitments to 340 private equity partnerships-$6.6 billion is invested, while the remaining $9.4 billion has not been drawn down.
At the same time, the pension fund will reduce its fixed income exposure from 28% to 26% and increase its real estate exposure a single point to 7%.
CalPERS’ new asset allocation is a more aggressive mix to counter the effects of the declining value of the fund’s public equity portfolio, says plan consultant Wilshire Associates in a report to CalPERS’ investment committee.
While CalPERS’ alternative investment portfolio has returned 11.4% since it was organized in 1990, over the last four year, the fund’s private equity portfolio has returned a net IRR of -1.9%.
Although CalPERS is not the first, it is the largest institutional investor in the last year to drive deeper into the private equity markets in order to boost returns. Last October, CalPERS’ cross-town rival, the $100 billion California State Teachers’ Retirement System (CalSTRS), upped its private equity allocation from 5% to 8% of its overall investment portfolio.
Meanwhile, small- and mid-sized public pension fund-from the Indiana State Teachers’ Retirement Fund to the Missouri Public Schools’ Retirement System-are jumping in with first-time allocations to the asset class, broadening the pool of investors in the asset class. Together the pool of new investors accounts for almost $1 billion of new money in the asset class.
Contact Carolina Braunschweig