CalPERS Taps Blackstone For $500M Separate Account

Pension System: California Employees’ Retirement System

Assets Managed: $233 Billion (May 8, 2012)

Private Equity Assets: $32.6 Billion (February 29, 2012)

Private Equity Allocation: 14% (February 29, 2012)

Private Equity Allocation Target: 14% (February 29, 2012)

Chief Investment Officer: Joe Dear

The largest pension in the nation has joined the biggest trend in private equity by committing $500 million to a separate account to be managed by The Blackstone Group. The separate investment pool will be focused on making “investment opportunities in areas of market, regulatory, or other forms of dislocation.”

The mandate from the $233 billion California Public Employees Retirement System is notably narrower in its investment focus than other recent separate accounts from the Texas Teachers’ Retirement System, the New Jersey Division of Investment, and more recently, the New York City Bureau of Asset Management, all of which emphasized flexibility in making opportunistic investments across widely defined areas.

Formally, the Blackstone Group separate account is called the Blackstone Tactical Opportunities Separate Account LP. The commitment is just the latest in a growing list of large pension systems that are looking to separate account strategies as a means to leverage their large size in exchange for better fees and terms, as well as more control over their investments. The effort to do this comes at a time when many pensions face severe underfunding in being able to deliver promised benefits.

Not only is the CalPERS commitment narrower in scope, but it is also much smaller than the $1.5 billion that New Jersey committed to a trio of Blackstone Group separate accounts late last year. It is also substantially smaller than the $6 billion that the Texas Teachers committed to Apollo Global Management and Kohlberg Kravis Roberts & Co. in late 2011.

CalPERS’s commitment to Blackstone Group also represents just a fraction of the $1.1 billion in pledges that the giant pension disclosed for the first quarter. Other pledges include a $400 million commitment to Cerberus Capital Management’s Cerberus Institutional Partners V LP, a fund seeking to raise $3.75 billion, about half the previous fund in the series. Fund V will concentrate on distressed private equity and turnarounds. Cerberus was the private equity firm that tried to turn Chrysler around prior to the financial crisis. The car company was later taken over by Fiat.

CalPERS also committed $100 million to PAG’s PAG Asia I LP, an Asia focused private equity fund. PAG, which used to be known as Pacific Alliance Group, is seeking to raise $1.7 billion for the fund. Already, PAG Asia I has drawn a $125 million commitment from the California State Teachers Retirement System. PAG is led by former TPG Capital senior partner Weijian Shan and will make buyouts in Asia, with a particular focus on the Chinese retail, insurance and hotel industries.

Finally, CalPERS will make a $100 million commitment to an emerging manager program run by Credit Suisse that will take the name, Credit Suisse – Domestic Emerging Manager LP. As part of the emerging manager mandate, Credit Suisse will identify and invest in a range of newer and promising fund managers, which CalPERS defines as managers forming their first, second or third funds.

Separately, CalPERS said that it would be renaming its private equity pool, calling it PE instead of AIM, which stood for Alternative Investment Management Program. In a memo made available before the pension’s investment committee meeting, CalPERS said that the new name “is intended to more clearly reflect the construction and implementation of the program.”