CalPERS revives coinvestment program with investment alongside Francisco Partners

California Public Employees’ Retirement System‘s push back into coinvestments appears to be underway. The $386.5 billion pension fund is making a $150 million coinvestment with Francisco Partners‘ latest flagship fund, according to a Form D.

The Form D, filed Friday, is on behalf of “CalPERS FP VI Co-Investment, L.P.” The entity’s address matched that of Francisco Partners’ San Francisco office, and several top executives are listed on it, including co-founder and chief executive officer Dipanjan Deb, chief investment officer David Golob, co-presidents Ezra Perlman and Deep Shah and chief operating officer Tom Ludwig.

In early June, Francisco Partners closed Francisco Partners VI on $7.45 billion, along with two other funds, according to the firm’s website. CalPERS has not yet announced any commitment to this fund. Many LPs commit to the funds with which they co-invest.

Last year, CalPERS re-started its co-investment program after years of dormancy, as Buyouts reported. A presentation delivered earlier this year by Meketa Investment Group, the fund’s private equity adviser, said co-investments and direct investments made up only 1 percent of the $26.1 billion private equity portfolio as of December 31, 2019.

CalPERS signaled its plans for more co-investments at its November board meeting, as sister title Private Equity International reported.

At that meeting, a separate Meketa presentation discussed steps CalPERS had taken to streamline its co-investment process, including allowing the fund’s managing investment director more discretion for making co-investments.

Meketa’s Steven Hartt said co-investments were one of the “additional avenues of deployment” through which CalPERS could increase its presence in private equity. As Buyouts reported, CalPERS wants to increase its private equity deployment to as much as $10 billion a year.

“Co-investment is going to be an important element of our strategy moving forward,” said private equity head Greg Ruiz at the same meeting. “And it’s an area where I expect we’ll make progress this year.”

According to the fund’s current policy, the director can make individual co-investments of up to $200 million provided he or she has approval from chief investment Officer Yu (Ben) Meng. According to the CalPERS website, Eric Baggesen is the current managing investment director. CalPERS declined to comment for this story.

Earlier this month, Meng announced plans to leverage up to 20 percent of the fund to increase its private equity and private credit presence, as Buyouts reported.

Francisco Partners, which did not respond to a request for comment, focuses on technology investments. It has offices in San Francisco, New York and London.

According to the CalPERS website, it is an LP in Francisco Partners’ first three funds. Fund I has a 4.4 percent internal rate of return and a 1.3x investment multiple, Fund II a 10 percent net IRR and 1.6x multiple, and Fund III a 20.9 percent net IRR and 2.5x multiple.

According to performance data from California State Teachers’ Retirement System, as of September 30, 2019, Fund IV has a 30.01 percent IRR and Fund V a 9.96 percent IRR. Fund V is a 2018 vintage, so is likely still in its J-curve, meaning performance is likely to improve as investments mature.

Action Item: read Meketa’s March presentation to CalPERS here and its November presentation here.