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CalPERS staff expects strong Q2 PE rebound

Interim CIO says Q2 valuations have shown improvement over the fund's Q1 numbers, but will not be finalized until the end of this quarter.

California Public Employees’ Retirement System‘s private equity portfolio should rebound strongly when numbers for the second quarter come in, its staff said at an investment committee meeting Monday, echoing other LPs who feel the quick rebound of the public markets will reflect positively on the private side.

One-year PE returns for fiscal 2020 were -5.1 percent, but those are marked to March 31, in the midst of the coronavirus market downturn, while most other asset classes, including public equities, are marked to June 30. A separate presentation from general consultant Wilshire Associates said the Q1 PE returns were -10.2 percent.

Interim chief investment officer Dan Bienvenue told board president Henry Jones that “anecdotally,” as valuations for the second quarter come in, returns were seeing a “bounce-back” and were at about 8 percent so far. CalPERS staff stressed these are preliminary returns.

Managing investment director Eric Baggesen said that while the -5.1 percent performance was not good, it did outperform public benchmarks.

“If we lined up the public equity outcome for that quarter relative to private equity, you still see private equity representing almost a 10 percent improvement on top of the outcome as of that March quarter,” he said. “So we’re absolutely hopeful that private equity will reflect the increases that we’ve seen in the public equity markets that have taken place since that timeframe, and obviously they’ve been very, very significant.”

Massachusetts Pension Reserves Investment Management Board‘s staff has made similar statements to its board and investment committee, as Buyouts reported. In general, the rapid rebound of public equity markets in the second quarter have alleviated alarm about impacts on PE portfolios.

Bienvenue said data for the second quarter would be available at the end of the third quarter on September 30.

As of September 11, CalPERS total fund market value was just over $410 billion. Its private equity portfolio was valued at $24.6 billion as of June 30.

Action Item: read the total fund investment presentation from the September 14 investment committee meeting here.