Meketa, CalPERS staff to examine consequences of cutting GPs from program

  • CalPERS allocates only to “Core 30” managers
  • Meketa: CalPERS didn’t benefit from fees, co-investment
  • $342.5 bln system mulls sweeping PE-program changes

California Public Employees’ Retirement System’s board instructed its investment staff and private equity consultant to examine the impact of cutting relationships from its PE program.

At a Nov. 13 meeting, CalPERS Investment Committee Chairman Henry Jones told CIO Ted Eliopoulos and Steven Hartt of Meketa Investment Group to do a “deeper dive” on the consequences of consolidating the private equity program in the hands of 30 PE firms.

Jones asked them to explore how to mitigate issues associated with the consolidation as the retirement system shifts to a new PE business model.

Meketa earlier produced a report saying the system’s 2015 decision to reduce its PE program to 30 managers hasn’t yielded the co-investment opportunities and lower fees staff had anticipated. Hartt presented the report at the Investment Committee’s Nov. 13 meeting.

The original plan called for larger commitments to a smaller group of fund managers. Staff expected larger commitment sizes would position CalPERS to negotiate lower fees or stronger co-investment or separate-account rights.

CalPERS’s ability to negotiate, compared with similarly situated institutions, didn’t improve, Hartt said. Furthermore, with just 30 managers in its program, CalPERS has struggled to commit enough capital to maintain its long-term target allocation to the asset class.

After CalPERS announced its plan to reduce its number of relationships with GPs, new proposals for PE investments slowed. This “seems unexpected given the strong fundraising environment,” the Meketa report said.

Meketa did not research the reasons for the decline, according to the report.

“What I’ve heard from [CalPERS] staff more recently is that they would look to have some more than just 30 managers on their list,” Hartt said during the meeting. “I don’t think there’s been a decision as to exactly how many, but I know that other plans do have a larger set [of managers they’ll commit to].”

It’s unclear how CalPERS would further diversify its private equity program in the context of the changes being weighed by its board. The $342.5 billion retirement system reportedly has explored hiring BlackRock to manage some or all of its PE program, or partnering with institutions like UC Board of Regents to form an outside entity for PE investing.

CalPERS plans to develop its new PE investment model over the next few months, a presentation by Sarah Corr at the meeting shows. Corr took over the program on an interim basis after former PE chief Real Desrochers left CalPERS for a position at CITIC Private Equity Funds Management earlier this year.

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