California Public Employees’ Retirement System wants more private equity.
During its investment committee meeting Monday, the board of the largest public pension system in the US approved raising CalPERS’ private allocation target to 13 percent, up from 8 percent. The board voted to increase the allocation, citing private equity’s strong performance for the system.
“In just three months, there was nearly a 20 percent swing in PE in the one-year relative return number,” said Dan Bienvenue during the meeting, deputy chief investment officer at CalPERS. “Market dynamics drove the change over those three months and reinforces the important of being a long-term investor.”
Private equity’s performance saw a strong upward swing from the second quarter, when it underperformed the benchmark by more than 17 percent. In the third quarter, the portfolio outperformed by 144 basis points.
As of March 31, 2021, the since inception net IRR is 11.2 percent and the net multiple is 1.5x on its PE investments. The estimated value of CalPERS’ PE portfolio is $44 billion.
Bienvenue added that inflation has been “less transitory” than expected, though he is not worried about it dragging on the performance.
“This again feeds into the importance of being a long term investor,” he said. “Inflation may be an issue now, but it shouldn’t be 20 years down the road.”
CalPERS’ yearlong review is also known as asset liability management (ALM) process, the board conducts the evaluation every four years. The new allocations will take effect on July 1, 2022 and will be in place until the next ALM is completed.