In a move that should interest the private equity secondary market, the California Public Employees’ Retirement System (CalPERS) approved a plan that will likely place some of its private equity holdings on the secondary market auction block. The move is part of a larger restructuring of the CalPERS portfolio.
The CalPERS Investment Committee approved a proposed action plan to overhaul the structure and management of its Alternative Investment Management (AIM) program. The plan calls for the $200 billion pension system to reduce the number of private equity relationships it manages and re-align its management structure.
CalPERS will divide its alternative assets portfolio into five sections: A core portfolio consisting of about 20 to 30 existing private equity firm relationships; a prospective portfolio of between 30 and 40 existing and new relationships; a more developed co-investment portfolio; and a portfolio of “discretionary vehicles” comprised of third-party managers making smaller investments.
The fifth part of the revamped structure would be a legacy portfolio that would consist of “non-core relationships, underperforming management teams, and retiring relationships.”
It is this legacy portfolio that presents the biggest opportunity to secondary buyers, and CalPERS intends for it to be managed by a third party. It has set out to “retire” funds not performing up to par and “explore opportunities to sell investments in the secondary market” over the next three years.
CalPERS will likely hand over much of its private equity management to established advisors and other third party investors.
The size and number of assets it will put on the secondary market has yet to be determined.
The CalPERS investment staff is expected to identify those assets that would be placed in the legacy portfolio by the second quarter of 2006. It then will assign a third party to monitor and manage those assets.