CalPERS soliciting bids for partners to oversee PE program

  • Partners will have discretion over investments, expected to work with PE staff
  • Solicitation period ends Jan. 19
  • Finalists expected to be interviewed at March or April investment-committee meetings

California Public Employees’ Retirement System is formally soliciting proposals from potential strategic partners to manage some of its $40.2 billion private equity program.

The partner will have discretion over how CalPERS invests PE, but will work with the $354.7 billion public pension’s retirement staff to develop an annual allocation plan that CalPERS will approve, a copy of the request for information distributed by CalPERS shows.

In its solicitation, CalPERS staff wrote it does not intend to create a “fund-of-fund” relationship or view this is as an “outsourcing of responsibility.” Responses are expected to include proposals for partnerships that would cover only co-investments, as well as proposals exploring how the partnership would invest in traditional funds, secondaries and other strategies.

The partnership is expected to expand the size and scope of CalPERS’s ability to co-invest alongside private equity firms. Annual allocations to co-investments could reach $2 billion or more, the copy provided by CalPERS says.

Notably, the new partner likely won’t play a role in administering the system’s emerging and transition manager programs.

“The partner is expected to act as an extension of CalPERS staff and continuously dialogue with CalPERS PE Staff on the management of the portfolio,” according to the solicitation. “The full scope of the investment opportunities that will be included is still under review by the CalPERS investment committee.”

A staff presentation from the closed session of CalPERS’s Nov. 13 investment-committee meeting indicated possible partners should not directly compete with the system’s existing general partners, which include major relationships with Blackstone GroupCarlyle Group and Silver Lake.

“The process is very targeted, and will only be open to those that CalPERS invites to participate in the process,” the copy provided by CalPERS says. “There is a possibility that no new mandate is awarded at the end of this process.”

It’s unclear which firms were invited to participate. CalPERS last year was widely reported to be in discussions with BlackRock about a possible strategic partnership. BlackRock did not respond to a request for comment.

“We are not providing the list of firms that received the RFI. However, if other firms are interested, they may reach out to our investment office,” spokeswoman Megan White wrote in an email.

The retirement system opened its solicitation on Dec. 21 and it’s scheduled to expire on Jan. 19. CalPERS issued the RFI only to a select group of managers, the retirement system said. CalPERS plans to evaluate the proposals and conduct due diligence in January, February and March.

The CalPERS investment committee is expected to interview finalists at its monthly meeting on March 19 or April 16. Citing internal documents, Buyouts previously reported CalPERS staff hoped to have finalists for the partnership lined up by early 2018, with the goal of launching the new partnership as close to the new fiscal year as possible.

CalPERS is open to exploring any legal structure that will help it achieve its goals, which include allocating between $7 billion and $10 billion of PE commitments per year, a spike from the $4 billion it’s expected to allocate in the current fiscal year.

CalPERS significantly reduced the number of relationships in its private equity portfolio in recent years, which consultant Meketa Investment Group found may have complicated its investment efforts.

A half-decade of surging distributions, fueled by fund managers selling off older investments, has made it difficult for the retirement system to keep 8 percent of its assets in private equity.

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