\n<\/p>\n
Private equity is in the doldrums, with groups struggling to exit investments and raise fresh capital. But one of the world\u2019s biggest investors is doubling down on the sector.<\/p>\n
Even as many of its peers limit their exposure to about 10 per cent of their portfolio, the $590bn California Public Employees\u2019 Retirement System concluded its 13 per cent private equity allocation fell short. Last year it lifted its target to 17 per cent. This year, its allocation hit 18 per cent.<\/p>\n
Sceptics \u2014 including some former board members \u2014 question whether such a high weighting is wise given the illiquidity and opacity of such investments. Critics also question the valuations of private assets whose true worth can be ascertained only when they are sold or listed.<\/p>\n
But under chief investment officer Stephen Gilmore, who joined last year, Calpers will be aiming to emulate the benchmark-beating performance of his former employer the New Zealand sovereign wealth fund and move on from a period of low returns and high leadership turnover. <\/p>\n
Calpers, which oversees the pensions of public workers in California, is one of the biggest investors in private equity funds in the US. It bet on the sector early, getting into the asset class in the 1990s, but lost its nerve after the financial crisis, committing less than many of its rivals. <\/p>\n
Calpers\u2019 chief investment officer Stephen Gilmore says it is an \u2018interesting time\u2019 to invest in private equity<\/span> <\/span><\/p>\n The result was what former chief investment officer Nicole Musicco declared a \u201clost decade\u201d between 2009 and 2018, and three years ago the fund decided to increase the pace of its private market investments \u2014 but with a twist. <\/p>\n Instead of its traditional mainstay of large buyout funds, Calpers shifted its focus towards growth and venture companies. It also moved towards co-investing alongside private equity groups, a model that comes with lower fees. Its private equity portfolio has doubled since 2022, from $50bn to $103bn, and it now has investments across about 400 funds. <\/p>\n So far, the pivot has paid off. Calpers\u2019 private equity portfolio delivered returns of 14.3 per cent in the year to June and was the top performer among America\u2019s 30 largest public pension fund private equity programmes last year \u2014 up from 17th in 2022.\u00a0Tilting towards co-investments had brought its private equity fees down 10 per cent over the past two and a half years, Calpers said. <\/p>\n Some former Calpers board members are concerned. Private equity investors around the world have suffered lower returns since interest rates rebounded in 2022 after years of historic lows. <\/p>\n Money paid back from private equity funds across the industry has been lower than expected, raising questions over whether assets can be sold for the sums that price managers claim, as they cannot be priced accurately until an exit is achieved.<\/p>\n \u201cWe carry the private equity at the value the manager says it\u2019s worth, we pay the manager their fee based on what they say is right,\u201d said Margaret Brown, who was a board member of Calpers from 2018 to 2022 and is now president of the Retired Public Employees Association of California (RPEA).<\/p>\n JJ Jelincic, who retired from the Calpers board in 2018 and is a fellow member of RPEA, said \u201cthe one thing you know about the stated values of private assets is that they are not right, they are overstated\u201d.<\/p>\n Calpers shows few signs of backing off from its contrarian bet on private equity, an asset class that has historically been its best performing. In fact, Gilmore told the Financial Times it was \u201creasonable to expect\u201d the exposure to \u201ccontinue to increase somewhat\u201d.\u00a0<\/p>\n Gilmore believes Calpers\u2019 long history in private equity \u2014 as well as its long investing horizon and low liquidity needs \u2014 gives it privileged access to opportunities with managers in the sector. <\/p>\n \u201cSize gives us a comparative advantage\u2009.\u2009.\u2009.\u2009we can be first call when it comes to co-invest,\u201d he told the FT. <\/p>\n Other investors, such as endowment funds, have by comparison come under pressure to sell because of a need to realise cash, presenting an opportunity to snap up investments on the cheap. It was an \u201cinteresting time\u201d to invest, Gilmore said. <\/p>\n Calpers\u2019 Sacramento headquarters<\/span> \u00a9 Xavier Mascarenas\/TNS\/ABACA\/ Reuters<\/span><\/p>\n The concerned retirees from RPEA have tasked former US Securities and Exchange Commission lawyer Edward Siedle to comb through Calpers\u2019 portfolio. They argue that the state has been reluctant to properly scrutinise the scheme because it could raise questions about whether the generous defined benefit pensions offered are viable in the long term. \u00a0<\/p>\n \u201cAnything that reflects badly on Calpers becomes a challenge to defined benefit,\u201d said Jelincic.<\/p>\n The results of Siedle\u2019s probe are not yet public. But the lawyer said it was a \u201cpivotal moment\u201d for private equity, with the Trump administration poised to open up private equity investing to millions of private sector retirees through 401k plans. In part, that move is based on the premise that such investments have delivered stellar returns for public pensions. <\/p>\n Despite RPEA\u2019s unease, Gilmore and his team may get more latitude over investment decisions rather than less. The chief investment officer and his team have recommended that Calpers adopt a \u201ctotal portfolio approach\u201d, which gives the investment team more discretion to adjust allocations across asset classes based on the level of risk the scheme wants to take. <\/p>\n The strategy is used by NZ Super, Gilmore\u2019s previous employer, as well as some large Canadian and Australian pension funds, and Calpers\u2019 leadership believes it will help improve the scheme\u2019s funding level.<\/p>\n That additional flexibility may make a heavily scrutinised scheme more opaque, however. <\/p>\n Siedle said he was concerned that scheme members could not see underlying holdings within a private equity fund and that the total fees paid to managers were unclear, even under the current structure. <\/p>\n Despite that, Calpers ranks highly on transparency benchmarks compared with its peers. The fund has a valuation tracker on its website that updates daily. <\/p>\n Recommended<\/p>\n Gilmore said the degree of transparency was \u201cat another level\u201d compared with other places he had worked and \u201calmost all\u201d discussions took place in open sessions where anybody could listen. He added that discussions were only carried out in closed sessions when public knowledge could negatively affect Calpers\u2019 ability to trade and compromise the performance of the fund, in accordance with US laws.\u00a0<\/p>\n Unlike many other defined benefit schemes, Calpers remains open. Strong returns in recent years and higher interest rates have improved its ability to meet pension payments, with an estimated funding level of 82 per cent \u2014 its highest level since 2007 and up from about 60 per cent in the depths of the financial crisis.<\/p>\n Gilmore said that even though the strategic changes to the private equity portfolio had been \u201cfairly recent\u201d, the impact on the total portfolio had been \u201cvery impressive in terms of the results\u201d. <\/p>\n","protected":false},"excerpt":{"rendered":" Private equity is in the doldrums, with groups struggling to exit investments and raise fresh capital. But one of the world\u2019s biggest investors is doubling down on the sector. Even as many of its peers limit their exposure to about 10 per cent of their portfolio, the $590bn California Public Employees\u2019 Retirement System concluded its<\/p>\n","protected":false},"author":1,"featured_media":33240,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[19065,7527,1285,19066,5337,7129,1877],"class_list":{"0":"post-33239","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-590bn","9":"tag-betting","10":"tag-big","11":"tag-californian","12":"tag-equity","13":"tag-investor","14":"tag-private"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/33239","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33239"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/33239\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/33240"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33239"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33239"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33239"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}